be rationally cut, or terminated, recording a residual. Only net positive economic outcomes are tallied. This operation leaves the misperception of ‘the odds being stacked’ favoring only positive outcomes seemingly resulting in an abnormally high valuation. However, the of the formula mathematically calculates the correct option value by adjusting these positive outcomes according to their likelihood, i.e., probability of a success (POS). The actual DM formula is where the threshold (‘floor’) can assume any value (or alternative formula) including the default . Using a threshold other than transforms the formula into a hurdle-weighted option variation. The result is no longer equivalent to the value of a financial option. Much of the perceived high value of a real option valuation is disproportionately located in the far-right end of the tail of the simulation distribution, an area of low probability but high value outcomes. The option valuation reflects the potential opportunity value if the various outcome assumptions are validated. Targeted, incremental investments can validate these low probability assumptions. If not, replace the assumptions with proven ‘plausible’ elements, then recalculate the value based on new learnings. The subjective undervaluation of real options partially can be explained by behavioral sciences. An innovation investor may perceive the initial investments to be potentially at a loss, particularly if the POS is low. Kahneman and Tversky’s Prospect theory proclaims that losses are perceived to have an impact more than twice that of gains for the same value. The result is the loss averse investor will subjectively undervalue the opportunity, and therefore the investment, despite the objective and financially accurate real option valuation. Regret aversion, another behavioral science observation, occurs when an unfounded decision is made to avoid regretting a future outcome. For example, a regret-averse investor decides to invest in a relatively ‘sure bet’ but smaller payoff opportunity relative to an alternative with a significantly higher but presumably uncertain payoff. The regret aversion phenomenon is closely aligned with uncertainty aversion (certainty bias), where the unknown aspects of the innovation opportunity (i.e., newness, lack of control) are rationalized as a hurdle to further investments. The consequences of loss- and regret-averse decision-making are parsimonious investments and underfunding (‘undervaluing’) of promising early-stage innovation opportunities. A savvy investor can overcome the perceived mis-valuation of an option price. Loss aversion registers significantly high when the entire option value is interpreted as investment risk. This emotional response fails to consider that the initial