Essays on the evaluation of novel ideas

Abstract

In this dissertation, I examine the evaluation of novel ideas in two essays. In the first, I, along with Hong Luo and Jeffrey Macher, study a novel, low-cost approach to aggregating judgment from a large number of industry experts on ideas that they encounter in their normal course of business in the film industry, where customer appeal is difficult to predict and investment costs are high. The Black List, an annual publication, ranks unproduced scripts based on anonymous nominations from film executives. This approach entails an inherent trade-off: low participation costs enable high response rates; but nominations lack standard criteria, and which voters see which ideas is unobservable and influenced by various factors.

Despite these challenges, we find that such aggregation is predictive: listed scripts are substantially more likely to be released than observably similar but unlisted scripts, and, conditional on release and investment levels, listed scripts generate higher box office revenues. We also find that this method mitigates entry barriers for less-experienced writers as: (i) their scripts are more likely to be listed and to rank higher if listed; (ii) being listed is associated with a higher release rate. Yet, the gap in release probabilities relative to experienced writers remains large, even for top-ranked scripts. In the second essay, I move from the question of the abstract value of an idea to the relative value given one's past and resources. In markets which require architectural changes for established firms, prior research claims incumbents must best the young firms imprinted by the new technology at the dominant design.

If they cannot, they should seek to avoid the market altogether. In contrast, this paper suggests that rather than compete for the dominant design, incumbents can succeed by focusing on niche segments that are proximate to their core business. This paper finds support for this strategy in console game makers' response to the rise of mobile games. Using a novel method to measure distance from the dominant design, the analysis shows that deviating from the dominant design was associated with greater revenue for console publishers, while mobile publishers observed the opposite result.