Tim Harford's Adapt: How to fund research so that it generates insanely great ideas, not pretty good ones.

Commentary about business and finance.
May 17 2011 6:57 AM

Positive Black Swans

How to fund research so that it generates insanely great ideas, not pretty good ones.

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Whichever way they sliced the data, Azoulay, Manzo and Zivin found evidence that the more open-ended, risky HHMI grants were funding the most important, unusual, and influential research. HHMI researchers, apparently no better qualified than their NIH-funded peers, were far more influential, producing twice as many highly cited research articles. They were more likely to win awards and more likely to train students who themselves won awards. They were also more original, producing research that introduced new "keywords" into the lexicon of their research field, changing research topics more often, and attracting more citations from outside their narrow field of expertise.

The HHMI researchers also produced more failures; a higher proportion of their research papers were cited by nobody at all. No wonder: The NIH program was designed to avoid failure, while the HHMI program embraced it. And in the quest for truly original research, some failure is inevitable.

Here's the thing about failure in innovation: It's a price worth paying. We don't expect every lottery ticket to pay a prize, but if we want any chance of winning that prize, then we buy a ticket. In the statistical jargon, the pattern of innovative returns is heavily skewed to the upside; that means a lot of small failures and a few gigantic successes. The NIH's more risk-averse approach misses out on many ideas that matter.

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It isn't hard to see why a bureaucracy, entrusted with spending billions of taxpayer dollars, is more concerned with minimising losses than maximizing gains. And the NIH approach does have its place. The Santa Fe complexity theorists Stuart Kaufman and John Holland have shown that the ideal way to discover paths through a shifting landscape of possibilities is to combine baby steps and speculative leaps. The NIH is funding the baby steps. Who is funding the speculative leaps? The Howard Hughes Medical Institute invests huge sums each year, but only about one-twentieth of 1 percent of the world's global R&D budget. There are a few organizations like the HHMI, but most R&D is either highly commercially focused research, the opposite of blue-sky thinking, or target-driven grants typified by the NIH. The baby steps are there; the experimental leaps are missing.

We need bureaucrats to model themselves on the chief of Britain's air staff in the 1930s: "firms are reluctant to risk their money on highly speculative ventures of novel design. If we are to get serious attempts at novel types ... we shall have to provide the incentive." That is the sort of attitude that produces new ideas that matter.