Innovation under ambiguity and risk
Date
2023
Journal Title
Journal ISSN
Volume Title
Publisher
SSRN
YU Faculty Profile
Abstract
We view innovation investments as real options and explore the implications of risk (volatility) as well as a newly defined outcome independent measure of ambiguity—Knightian uncertainty— for innovation decisions. The empirical analysis uses stock returns to compute an implementable measure of ambiguity. We also control for risk and other determinants of innovation. We find a consistently significant negative effect of ambiguity on R&D, patents, and citations, as predicted. The effect of risk on R&D is positive and significant, but the corresponding effect on patents and citations is negative and significant. Ambiguity matters more for high-tech firms, consistent with intuition.
Description
Scholarly article / Open access
Keywords
Ambiguity measurement, Ambiguity aversion, Risk aversion, Innovation, Patents
Citation
Coiculescu, G., Izhakian, Y., & Ravid, S. A. (2023). Innovation under ambiguity and risk. Journal of Financial and Quantitative Analysis, 1–97, accepted manuscript in advance of publication.