Seminar  |  02/08/2018 | 12:00 PM  –  01:00 PM

Brown Bag Seminar: Macro Psychological Characteristics Predict the Creation and Adoption of Radical Innovations in American Cities

Lars Mewes (University of Hanover) and Tobias Ebert (ZEW Mannheim)

Max Planck Institute for Innovation and Competition, Munich, Room 313

Knowledge is substantial for modern economies and new knowledge a crucial driver for long-term regional growth. This holds especially true for radical innovations that are associated with high returns to investment and have the potential to initiate societal transformations. Recent contributions in Economic Geography emphasized that such radical innovations occur even more concentrated in space than incremental innovations. Thereby, to sustain growth, it is not only essential for regions to generate radical innovations (creation), but also to exploit arising potentials by quickly adopting radical innovations generated elsewhere (adoption). To date, the regional determinants shaping the creation and adoption of radical innovations remain largely unknown. In the present research, we take an interdisciplinary approach and suggest that macro psychological characteristics of the region affect the creation and adoption of radical innovations. To capture differences in macro psychological characteristics among regions, we aggregated Big Five personality trait data (Openness, Conscientiousness, Extraversion, Agreeableness, and Neuroticism) from more than three Million US residents to the level of 381 Metropolitan Statistical Areas. We then conducted two studies to examine the extent to which aggregated personality scores can predict the creation and adoption of radical innovations across US cities. First, to examine creation, we linked personality data with USPTO patent data. We show that highly influential patents – i.e. radical innovations – more likely emerge in regions with an open, supposedly innovation-friendly culture. To control for endogeneity in our model specification, we also applied instrumental variable regressions using distance to sea as a reliable instrument for openness. Second, to examine adoption, we turned towards two illustrative examples of radical innovations - Uber and Airbnb - that are currently deeply reshaping conventional industries. To this end, we gathered annual data on the number of non-employer businesses in taxi and accommodation services. Within this data structure, we then exploited the foundation of Uber and Airbnb as a quasi-experimental setting. That is, we applied panel regressions with time fixed effects before and after the foundation of the respective company. Thereby, we show that the same psychological characteristics that facilitated the emergence of radical innovations also predicted how quickly Uber and Airbnb gain traction in US cities. Importantly, in all our model conditions macro psychological characteristics predicted unique variance above and beyond standard economic control variables. Feeding into the emerging literature on Geographical Psychology, we conclude that linking aggregated personality scores to economic outcomes promises valuable insights for both disciplines. For psychologists, the correlates of aggregate personality scores have implications for understanding the formation and expression of personality. For economists, hidden regional culture differences may serve as a crucial factor that is missing from conventional economic analyses and public policy strategies.

Contact Person: Dr. Fabian Gaessler