Individuals who are inclined to take risks are more likely to make decisions that lead to innovation, a key factor that companies should consider as they seek to jumpstart research and development — and economic growth — in the wake of the COVID-19 virus.
In the pharmaceutical and biotechnology industries, R&D spending is up, but companies are producing fewer new drugs and treatments. That’s due, in part, to risk aversion among R&D decision-makers, according to the authors of a University of California San Diego-led study published in the National Bureau of Economic Research Working Papers Series.
To understand how risk tolerance affects the pursuit of innovation, the researchers designed experiments that asked graduate-level students at UC San Diego’s Rady School of Management to invest in hypothetical projects. Despite financial incentives to support riskier ventures, a majority of participants consistently favored more conservative options, rejecting the notion that great risk can bring great reward.
The researchers classified only 12% of participants as risk-loving, but those people were most likely to make innovation-friendly decisions. Identifying individuals who are comfortable taking risks and tasking them with leading R&D efforts is key to the pursuit of new discoveries and revitalizing the economy, according to the researchers.