Research and development is an inherently risky endeavor, but it’s not one that is adopted lightly by many of us.  New research from the University of California San Diego explores what might happen to R&D when we become too risk averse.

The authors argue that the appropriate attitude towards risk is crucial for R&D to succeed, but they warn that this is not a quality in particularly high supply in many R&D managers.  As such, they believe it’s vital that R&D managers are recruited in large part based upon their appetite for risk.

The researchers examined the response to risk when making R&D-based decisions via a number of experiments whereby participants were asked to place bets on particular research projects out of a number of hypothetical proposals put forward by an independent science advisory panel.  Each proposal was given a risk rating.

Attitude towards risk

Participants were given financial rewards that disproportionately encouraged them to back riskier projects, yet despite this incentive, they routinely opted for lower-risk ventures instead.

This was replicated in a second experiment whereby volunteers were given a budget and asked to invest in a portfolio of projects, with a range of high and low-risk ventures available.  Safety first was the preferred choice in the majority of instances.

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

Over half of the participants fell into the most risk-averse group, with just 12% actively embracing risk.  The data suggests that those from this group were far more likely to back breakthrough research, which would have significant implications for R&D funding in the real world.

“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,” the researchers conclude.