Innovate Versus Imitate: Theory and Experimental Evidence
Journal of Economic Behavior & Organization, Vol.177, September 2020, pp. 727-751
53 Pages Posted: 24 Apr 2019 Last revised: 19 Aug 2020
Date Written: January 7, 2019
Abstract
We model and experimentally evaluate the trade-off between innovation and imitation commonly faced by firms and individuals. Innovation involves searching for a high payoff opportunity, but paying a cost to do so. Imitation involves avoiding the search cost and copying the most successful payoff opportunity uncovered thus far. We formulate a novel model of sequential innovation versus imitation decisions made by a group of n regret minimizing agents. We analyze the consequences of complete versus incomplete information about the distribution of payoffs from innovation on agent's decisions. We then study these predictions in a laboratory experiment where we find evidence in support of our theoretical predictions.
Keywords: Innovation, Imitation, Risk, Ambiguity, Regret Minimization, Experimental Economics
JEL Classification: C91, C92, D21, D81, O31
Suggested Citation: Suggested Citation