The Institute for Choice
University of South Australia
Institutional Affiliation: University of South Australia
NBER Working Papers and Publications
|March 2020||The Risk of Caution: Evidence from an R&D Experiment|
with Richard Carson, Joshua S. Graff Zivin, Sally Sadoff, Jeffrey G. Shrader Jr: w26847
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 t...