How does one determine the value represented by the ability to choose from many options, and to switch between them over a period of time?
Intuitively, it makes sense that getting to choose from Choice A or Choice B over a time period t, is more valuable than selecting one of A or B and sticking with it for that time period. But how would one go about calculating that premium?
For example, owning a house presents the optionality of living in it, selling it, or renting it out. Imagine a world where you could move in to that house whenever, rent it out quickly for any period of time (AirBnb?), or sell it instantly (Opendoor?).
Without having the choice and just selecting some option, you just calculate the value of house over a time period t as max(value(Live, t), value(Rent, t), value(Sell, t)).
What is the premium for having the choice between these options and the ability to switch between them, over the single decision?