Scholars have long sought to understand the advantages different types of firms may have in generating innovation. A popular notion is that startup companies are able to attract employees with “fire in the belly,” allowing them to be more productive. Yet research has paid little attention to...

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...

We investigate how CEO's risk incentive (vega) affects firm innovation. To establish causality, we exploit compensation changes instigated by the FAS 123R accounting regulation in 2005 that mandated stock option expensing at fair values. Our identification tests indicate a positive and causal...

Risk theories typically assume individuals make risky choices using probability weights that differ from objective probabilities. Recent theories suggest that probability weights vary depending on which portion of a risky environment is made salient. Using experimental data we show that salience...

Risk theories typically assume individuals make risky choices using probability weights that differ from objective probabilities. Recent theories suggest that probability weights vary depending on which portion of a risky environment is made salient. Using experimental data we show that salience...

We study the impact of individual risk attitude on the relationship between product innovation and firm performance, in a model of firm growth with endogenous product selection. We exploit a unique dataset collecting firm-level data on new product introductions and individual attitudes towards...

This study aims at (1) developing an index to measure CEO risk tolerance using publicly available data, and (2) examining the association between this index and investment in risky projects. Using relative pay-at-risk as a proxy for risk preference (tolerance) is a new proposition and is...

In this paper we offer an alternative framework for examining why risk matters in the decisions of economic agents, and how the agent’s risk attitude affects his decisions. This “Threshold Theory” framework is based on a real options approach and the observation that in many situations an...

Based on the aggregated insights of the existing theories related to multiple sources of efficacy and locus of control, we introduce the theory of mixed control, a model of compound-risk perception. This theory considers outcome expectancies as being composed of expectancies regarding three...

Decision making usually involves uncertainty and risk. Understanding which parts of the human brain are activated during decisions under risk and which neural processes underly (risky) investment decisions are important goals in neuroeconomics. Here, we reanalyze functional magnetic resonance...