Exploration, exploitation and adaptive rationality: the neo-Schumpeterian perspective

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Resource allocation between exploration of emerging technological possibilities and exploitation of known technological possibilities involves a delicate trade-off. We develop a model to represent this trade-off under the time-pressing situation where the firm's existing basis of survival is constantly challenged by competitors' innovation and imitation. We examine how the employment of an adaptive rule improves a balance between the exploration and the exploitation. Simulation experiments show that an adaptively rational decision rule, or a step-by-step exploration of unknown opportunities based on feedback on returns, is more likely to increase firm survival under diverse conditions than an all-or-nothing approach regarding the unknown opportunities. Furthermore, our study suggests that the adaptively rational rule is self-protected from too much loss, while its potential pay-off can be unbounded above. 2002 Elsevier Science B.V. All rights reserved.
Publisher
ELSEVIER SCIENCE BV
Issue Date
2002-12
Language
English
Article Type
Article
Keywords

INNOVATION; ENVIRONMENTS; INDUSTRY

Citation

SIMULATION MODELLING PRACTICE AND THEORY, v.10, no.5-7, pp.297 - 320

ISSN
1569-190X
DOI
10.1016/S1569-190X(02)00084-9
URI
http://hdl.handle.net/10203/4398
Appears in Collection
MT-Journal Papers(저널논문)
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