University of California San Diego

Aversion to Risk by R&D Managers May Hurt U.S. Economic Prospects

Executives tolerant of failure in pursuit of reward are best suited to seed innovation needed for growth
16-Mar-2020 3:30 PM EDT, by University of California San Diego

Newswise — While concerns loom over an impending recession caused by the spread of COVID-19, policymakers and business leaders have implemented radical strategies, such as slashing interest rates to invigorate the U.S.’s weakened economy.  Research and Development (R&D) has long been key in the nation’s economic prospects and according to new research from the University of California San Diego, the country’s ability to maintain its competitive edge in this area largely depends on managers in R&D being less averse to risk.

R&D is important for the success of companies and is essential in boosting economic growth; however, it is generally an expensive and complex undertaking. For example, the decline in new drugs and breakthrough therapeutics—despite increased R&D spending—has been attributed in part to a lack of risk-taking by pharmaceutical and biotech companies. This has been cause for concern among research and investor communities, who point to slowdowns of paradigm-shifting discoveries in the past quarter century.

According to the authors of a National Bureau of Economic Research (NBER) working paper, encouraging appropriate risk-taking is the key to successful R&D programs. However, their research shows that the required tolerance of failure in pursuit of reward is not a disposition that is equally shared across R&D managers, which is troublesome for the advancement of science.

The paper’s co-author, Joshua Graff Zivin, a professor of economics with UC San Diego’s School of Global Policy and Strategy gives an example of how the risky exploration of unproven scientific pathways led to the discovery of immunotherapy’s now-heralded role in cancer treatment.

“When immunologist James Allison developed an antibody that he felt was ready for pharmaceutical development, biotech companies repeatedly turned him away after dismissing his ideas as too farfetched,” Graff Zivin said. “However, he persevered and today, drugs based on his initial ideas are now poised to become among the most clinically and commercially successful cancer drugs on the market.”

He added, outside-the-box decision-making can aid in the race to develop a vaccine to stop the spread of COVID-19.

Why firms should recruit R&D managers who have an “appetite for risk”

To understand how managers respond to risk when making R&D decisions, the researchers conducted a series of experiments with master’s degree students in a program focused on the intersection of business and technology. Many of these students go on to work at investment firms or serve as managers making R&D decisions at companies in the health and technology sectors.

The nearly 200 MBA and Master of Finance participants from UC San Diego’s Rady School of Management were asked to assume the role of a R&D director at a private company. In a tournament-style structure, students had to “bet” on their preferred research projects from a series of hypothetical proposals that had been judged and scored by an objective, outside science advisory panel. The proposals were scored on a scale of high-variance projects (i.e. with riskier outcomes) and low-variance projects (i.e. with more predicable outcomes).

The experiments provided financial rewards that disproportionately encouraged the choice of riskier projects. Despite this, participants routinely chose the low-variance investments, consistently showing a distaste for projects that had greater uncertainty.

In another experiment with the same group, students were randomly assigned a budget and were asked to invest in a simulated portfolio where again they had to choose between risky and non-risky projects to invest in. Much to the researchers’ surprise, participants again consistently chose to invest in projects with the safest outcomes, especially among those with smaller budgets.

“Though our participants are trained and incentivized to take on more risk in exchange for more reward, they did not behave this way,” Graff Zivin said. “Our study points to potential inefficiencies in the research investment process, and the results could help explain low rates of breakthrough innovation.”

Who among the group were most comfortable with risk-taking enterprises? Of the subjects, 52 percent were classified as risk-averse, 36 percent were risk-neutral and 12 percent were risk-loving. They found that decision-makers who are risk-loving were most likely to fund breakthrough projects.

The authors concluded, “Our results showing that participants ‘hard-wired’ as risk-loving made better investment decisions indicates that firms aiming to encourage more innovation may want to include the risk preferences of those workers in charge of research and development as a factor in their hiring and promotion decisions.”

Graff Zivin’s co-authors include Richard T. Carson, professor of economics in the UC San Diego Division of Social Sciences; Jordan J. Louviere, professor of marketing, School of Marketing, University of South Australia; Sally Sadoff, professor of economics, UC San Diego’s Rady School of Management; and Jeffrey G. Shrader, assistant professor of economics, School of International and Public Affairs, Columbia University.

SEE ORIGINAL STUDY




Filters close

Showing results

110 of 2503
Newswise: Ozone Disinfection Could Allow Safe Reuse of Personal Protective Equipment (PPE)
Released: 8-Jul-2020 8:05 PM EDT
Ozone Disinfection Could Allow Safe Reuse of Personal Protective Equipment (PPE)
Georgia Institute of Technology

A new study shows that ozone gas, a highly reactive chemical composed of three oxygen atoms, could provide a safe means for disinfecting certain types of personal protective equipment that are in high demand for shielding health care personnel from Covid-19.

Released: 8-Jul-2020 6:35 PM EDT
A data visualization platform that tracks countries' progress on meaningful access to information
University of Washington

The Technology & Social Change Group at the University of Washington Information School has released the Development and Access to Information Dashboards, a data visualization platform that tracks the progress of countries and regions on key indicators related to three dimensions of meaningful access to information: Connectivity, Freedom and Gender Equity.

Newswise: Williams-Brent-cropped.jpg
Released: 8-Jul-2020 5:15 PM EDT
Signatory to letter to WHO focused on understanding virus transmission by aerosols
Washington University in St. Louis

On Monday, more than 230 scientists from around the world declared “It’s time to address airborne transmission of COVID-19.”In a letter signed by Washington University in St. Louis faculty and published in the journal Clinical Infectious Diseases, directed toward “Most public health organizations, including the World Health Organization,” the scientists urged that public health organizations need to make recommendations beyond hand washing and mask-wearing.

Released: 8-Jul-2020 3:40 PM EDT
Special unit will treat nursing home patients with COVID-19 in Jefferson County
University of Alabama at Birmingham

UAB will establish a special 25-bed unit to treat patients from nursing home facilities who have COVID-19. The unit will isolate nursing home residents who test positive and are asymptomatic or mildly symptomatic, while providing the appropriate level of skilled nursing care that those patients require.

Released: 8-Jul-2020 3:40 PM EDT
New Study Finds COVID-19 Impact on Community Radiology Practices
Harvey L. Neiman Health Policy Institute

The COVID-19 pandemic has quickly spread across all 50 United States. Associated recommendations that healthcare facilities defer non-urgent visits, tests, and procedures led many imaging facilities to temporarily curtail most of their non-urgent services. This new Neiman Institute study characterizes the recent declines in non-invasive imaging volumes at community practices.

Released: 8-Jul-2020 2:05 PM EDT
Researchers propose novel approach to limit organ damage, improve outcomes for patients with severe COVID-19
Beth Israel Deaconess Medical Center

In a paper published in Cancer and Metastasis Reviews, a team of researchers from Beth Israel Deaconess Medical Center and Brigham and Women’s Hospital propose that controlling the local and systemic inflammatory response in COVID-19 may be as important as anti-viral and other therapies.

Released: 8-Jul-2020 2:05 PM EDT
Mount Sinai Researcher Receives NIH Award to Study Immune Responses of Patients With Inflammatory Skin Diseases in the Setting of COVID-19 Infection
Mount Sinai Health System

The study will aim to understand whether systemic medications and biologics, such as dupilumab—a monoclonal antibody that binds to an inflammatory molecule, IL-4 receptor alfa, and inhibits the inflammatory response that leads to rashes and itching from atopic dermatitis/eczema—may have a positive or negative impact on COVID-19 responses in patients who have the disease.

Newswise: 236796_web.jpg
Released: 8-Jul-2020 1:10 PM EDT
Researchers create air filter that can kill the coronavirus
University of Houston

Researchers from the University of Houston, in collaboration with others, have designed a "catch and kill" air filter that can trap the virus responsible for COVID-19, killing it instantly.

Newswise:Video Embedded pandemic-could-make-drug-resistance-epidemic-worse
VIDEO
Released: 8-Jul-2020 11:50 AM EDT
Pandemic could make drug resistance epidemic worse
University of Georgia

Researchers fear that widespread use of antibiotics during the coronavirus pandemic will add fuel to the fire, making more common infections that were once treatable possibly life threatening.


Showing results

110 of 2503

close
2.82875