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Innovate versus imitate: Theory and experimental evidence

John Duffy () and Jason Ralston

Journal of Economic Behavior & Organization, 2020, vol. 177, issue C, 727-751

Abstract: We model and experimentally evaluate the trade-off between innovation and imitation commonly faced by firms. Innovation involves searching for a high payoff opportunity, but paying a cost in order to do so. Imitation involves avoiding that search cost and copying the most successful payoff opportunity uncovered thus far. We formulate a novel model of sequential innovation versus imitation decisions made by a group of n regret minimizing agents. We analyze the consequences of complete versus incomplete information about the distribution of payoffs from innovation on agents’ decisions. We then study these predictions in a laboratory experiment where we find evidence in support of our theoretical predictions.

Keywords: Innovation; Imitation; Risk; Ambiguity; Regret minimization; Experimental economics (search for similar items in EconPapers)
JEL-codes: C91 C92 D21 D81 O31 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.jebo.2020.06.014

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Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D.

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Handle: RePEc:eee:jeborg:v:177:y:2020:i:c:p:727-751