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

See all articles by John Duffy

John Duffy

University of California, Irvine

Jason Ralston

Whitman College

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

Duffy, John and Ralston, Jason, Innovate Versus Imitate: Theory and Experimental Evidence (January 7, 2019). Journal of Economic Behavior & Organization, Vol.177, September 2020, pp. 727-751, Available at SSRN: https://ssrn.com/abstract=3359870 or http://dx.doi.org/10.2139/ssrn.3359870

John Duffy

University of California, Irvine ( email )

Department of Economics
3151 Social Science Plaza
Irvine, CA 92697
United States
949-824-8341 (Phone)

Jason Ralston (Contact Author)

Whitman College ( email )

P.O. Box 98003
Walla Walla, WA 99362
United States

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