The Streetlight Effect in Data-Driven Exploration

Johannes Hoelzemann, Gustavo Manso, Abhishek Nagaraj and Matteo Tranchero

No 32401, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study exploration under uncertainty and show how access to data on past attempts can paradoxically hinder breakthrough discovery. We develop a model of the “streetlight effect” demonstrating that when data highlights attractive but ultimately suboptimal projects, it can narrow exploration and suppress innovation. In a laboratory experiment, we find that revealing the value of an enticing project lowers payoffs and reduces breakthrough discoveries. This drop stems from increased free-riding behavior, which crowds out the generation of new data. We validate our theory in the context of scientific research into the genetic origins of human diseases. To identify the causal impact of past data, we use an instrumental variable that leverages exogenous genetic overlaps between humans and laboratory mice, which reduces research costs for specific genes and leads to prioritized data collection about them. We find that diseases with early evidence of promising genetic targets are 16 percentage points less likely to yield breakthroughs than those where early efforts failed. While competition attenuates the streetlight effect, it does not eliminate it. Our paper provides the first systematic analysis of this phenomenon, outlining the conditions under which data leads agents to look under the lamppost rather than engage in socially beneficial exploration.

JEL-codes: C73 C92 D81 D83 O31 (search for similar items in EconPapers)
Date: 2024-05
New Economics Papers: this item is included in nep-exp and nep-ppm
Note: PR
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.nber.org/papers/w32401.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:32401

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w32401
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().