EconPapers    
Economics at your fingertips  
 

The Risk of Caution: Evidence from an R&D Experiment

Richard Carson, Joshua Graff Zivin, Jordan Louviere, Sally Sadoff and Jeffrey Shrader

No 26847, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Innovation is important for firm performance and broader economic growth. But breakthrough innovations necessarily require greater risk-taking than more incremental approaches. To understand how managers respond to uncertainty when making research and development decisions, we conducted three experiments with master’s degree students in a program focused on the intersection of business and technology. Study participants were asked to choose whether to fund hypothetical research projects using a process that mirrors real-world research and development funding decisions. The experiments provided financial rewards that disproportionately encouraged the choice of higher-risk projects. Despite these incentives, most participants chose lower-risk projects at the expense of projects more likely to generate a large payoff. We also elicited participants’ personal risk preferences and found that decision-makers who are more tolerant of risk were more likely to fund breakthrough projects. The results suggest that the risk preferences of managers in charge of research investments may have an oversized effect on the rate of breakthrough innovation and the profitability of firms.

JEL-codes: D8 G11 O3 (search for similar items in EconPapers)
Date: 2020-03
New Economics Papers: this item is included in nep-bec, nep-cfn, nep-exp, nep-ino, nep-ppm and nep-sbm
Note: PR
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.nber.org/papers/w26847.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:26847

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w26847
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 ().

 
Page updated 2020-07-23
Handle: RePEc:nbr:nberwo:26847