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| Author: | Morris, P. A. Teisberg, E. O. Kolbe, A. L. |
| Title: | When choosing R&D projects, go with long shots |
| Journal: | Research Management
1991 : JAN-FEB, VOL. 34:1, p. 35-40 |
| Index terms: | R&D PROJECTS MANAGERS RISK COSTS PROFIT |
| Language: | eng |
| Abstract: | An intentionally simplified framework is used to highlight some general insights about why safer R&D projects may be less valuable to the firm than riskier R&D projects. It is shown that if two projects have the same expected payoffs and the same costs, but different risks , and different ranges of possible outcomes, a conscientious R and D manager should bet on the long shot and choose the riskier project. It is further shown that this result often holds even for risk-averse managers. It is argued that the riskier project has a higher expected pay off if the R&D is successful. Observations are provided that can guide the development of a manager's intuition. |
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