Hype As a Public Good for Innovation
11 Pages Posted: 20 Mar 2017
Date Written: March 16, 2017
Early stage innovation can benefit from cooperative pooling of distributed information and other innovation resources in order to discover entrepreneurial opportunities (what Allen and Potts (2016) call the ‘innovation commons’). The innovation commons is a private ordering, but social welfare losses arise when innovation commons fail to form, or are small and only weakly cooperative. This results in arrested Schumpeterian development. We suggest a mechanism by which a government can facilitate private cooperation in innovation commons by exploiting the behavioural heuristic of loss aversion through the public provision of targeted technology hype. What we call hypeless technologies can experience innovation failure because of an undersupply of early stage cooperation (i.e. pooling information and resources), retarding entrepreneurial discovery and cruelling the innovation trajectory. Weak cooperation occurs because of missing anticipation of regret (Kahneman and Tversky 1979) about the consequences of not being in the innovation commons. The purpose of hype is not to sell the technology, but to induce awareness that may manifest as loss aversion, which is privately resolved by supplying cooperation.
Keywords: innovation economics, new technology, hypecycle, market failure, behavioral economics
JEL Classification: B52, O3
Suggested Citation: Suggested Citation