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Innovation under Ambiguity and Risk

Baruch College Zicklin School of Business Research Paper No. 2019-08-07

54 Pages Posted: 2 Aug 2019 Last revised: 5 Aug 2021

See all articles by Gabriela Coiculescu

Gabriela Coiculescu

Yeshiva University - Syms School of Business

Yehuda (Yud) Izhakian

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance

S. Abraham Ravid

Yeshiva University - Syms School of Business

Date Written: July 30, 2019

Abstract

We view innovation investment as a real option and explore the implications of ambiguity (Knightian uncertainty) and risk for innovation decisions. Our analysis uses a risk measure and a new outcome-independent measure of ambiguity. We find a consistently significant negative effect of ambiguity on R&D, patents, and citations supporting our theoretical notion. We also find a significant positive effect of risk on R&D, but the effect of risk on patents and citations is negative and significant. The different nature of R&D investments versus patent investments and citations may explain this difference. Ambiguity matters more for high-tech firms, consistent with intuition.

Keywords: Ambiguity measurement, Ambiguity aversion, Risk aversion, Innovation, Patents

JEL Classification: D81, G31, O31, O32

Suggested Citation

Coiculescu, Gabriela and Izhakian, Yehuda (Yud) and Ravid, S. Abraham, Innovation under Ambiguity and Risk (July 30, 2019). Baruch College Zicklin School of Business Research Paper No. 2019-08-07, Available at SSRN: https://ssrn.com/abstract=3428896 or http://dx.doi.org/10.2139/ssrn.3428896

Gabriela Coiculescu

Yeshiva University - Syms School of Business ( email )

United States

Yehuda (Yud) Izhakian (Contact Author)

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance ( email )

17 Lexington Avenue
New York, NY 10010
United States

HOME PAGE: http://people.stern.nyu.edu/yizhakia/

S. Abraham Ravid

Yeshiva University - Syms School of Business ( email )

United States

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