The Science of Risk Aversion: Why Safe Wins

A new study published on August 15 in PLOS Biology by Kevin Gross of North Carolina State University and Carl Bergstrom from the University of Washington explores a mathematical model based on hidden-action economic theory. This model provides insights into how the invisibility of effort and risk influences research strategies and the incentive structures within scientific research.

Scientific research inherently involves risk, as more cautious methods are less likely to lead to rapid advancements. Yet, much of the research funded today tends to be low-risk, which frustrates funding agencies trying to promote innovative, high-return projects. Gross and Bergstrom adapted an economic contracting model to investigate how the lack of visibility into risk and effort discourages high-risk research.

Their model addresses a hidden-action problem where the scientific community needs to create reward systems that motivate both effort and risk-taking while protecting researchers' livelihoods from the unpredictability of research outcomes. The challenge is that incentives to promote effort can actually hinder risk-taking because a failed experiment might reflect either high risk or insufficient effort.

As a result, scientists often choose safer projects that demonstrate effort but do not advance science as rapidly as riskier projects could. A social planner who prioritizes scientific progress might propose higher rewards for major discoveries to encourage high-risk research, but this could also increase the personal risk for scientists, potentially making their careers less secure.

The study highlights that because the scientific community sets its own reward structures, these incentives often fail to promote the level of risk-taking needed for faster scientific progress. This tendency towards safer research is not due to individual or institutional shortcomings but rather stems from the complex balance between ensuring career stability and fostering the necessary risk for significant scientific breakthroughs.