Abstract
We examine the role of incumbent firms in developing radical technologies, distinguishing between their motivation and ability to develop radical inventions. We argue that the motivation to pursue radical invention will be strongest when performance is moderately below aspiration, and will weaken as performance either falls substantially below aspiration or rises substantially above aspiration. At the same time, ability will increase with performance, resulting in a behavioral mismatch between ability and motivation – firms overinvest in radical invention when performance is moderately below aspiration and underinvest when performance is substantially above aspiration, with these effects being stronger for multi-technology firms. We show empirical support for our arguments using patent data, adopting a novel empirical approach that distinguishes the potential radicalness of an invention from its eventual success. Our study highlights the role of established firms as a source of radical invention, and examines the behavioral biases that may limit firms from pursuing competence-enhancing radical technologies.
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