This Easter week, I’ve been thinking about why new ventures are so important. Whether in private industry, where startups are the most consistent source of innovative ideas, or in academia, where new assistant professors are hired each year, newcomers are often the most consistent source of innovation. Why is this?
One explanation is the Arrow replacement effect (named after Kenneth Arrow), which states that “preinvention monopoly power acts as a strong disincentive to further innovation.” Arrow’s argument goes like this: suppose there’s an organization that is earning profit Pold, and there is some innovation that will increase profit to Pnew (Pnew > Pold). If the existing organization pursues the innovation, their profits will thus increase by ∆P := Pnew - Pold. But a new organization will see its profits increase by Pnew: since the startup has no existing profit to replace, the rewards to innovation are higher. Thus innovation is more appealing for those without any economic stake in the status quo.1
We can see this play out today in the dynamic between Google and OpenAI/Microsoft: Google already has a virtual monopoly in search, and so is hesitant to replace what they have, whereas Microsoft has already been losing in search and so is eager to replace Bing with Sydney an AI-powered alternative. (It’s to Apple’s credit that they so eagerly pursued the iPhone when it meant effectively destroying the iPod, one of their top money-makers.2)
One can also see this scenario in academia—plenty of established labs have programs built up around studying specific systems, and are thus disincentivized to study areas which might obviate projects they’ve spent decades working on. For instance, labs dedicated to “conventional” synthetic methodology might be slower to turn to biocatalysis than a new assistant professor with nothing to lose; labs that have spent decades studying protein folding might be slower to turn to AlphaFold than they ought to.
Another reason is that new entrants often have an advantage in understanding the status quo. In The Art of Doing Science and Engineering (book review coming, eventually), computing legend Richard Hamming discusses how there’s often a disadvantage to being a pioneer in a field. Hamming’s argument, essentially, is that those who’ve had to invent something new never understand it as intuitively as those who have simply learned to take it for granted:
The reason this happens is that the creators have to fight through so many dark difficulties, and wade through so much misunderstanding and confusion, they cannot see the light as others can, now the door is open and the path made easy…. in time the same will probably be true of you.
In Hamming’s view, it’s the latecomers to a field who can see more clearly the new possibilities opened by various innovations, and take the next steps towards previously unimaginable frontiers. There’s a deep irony in this: the very act of inventing something new makes you less able to see the innovations enabled by your own work. The process of invention thus acts like a relay race, where newer generations continually take the baton and push things forward before in turn dropping back.
I’ve heard these ideas discussed in terms of naïvete before—the idea being that innovation requires a sort of “beginner’s luck,” a blind optimism about what’s possible that the experienced lack—but I think that’s wrong. A belief in naïvete as the key driver of innovation implies that excessive knowledge is detrimental: that it’s possible to “know too much” and cripple oneself. If anything, the opposite is true in my experience. The most creative and productive people I’ve met are those with an utter mastery of the knowledge in their domain.
Hamming’s proposal, which is more cognitive/subconscious, is thus complementary to the more calculated logic of the Arrow replacement theorem: existing organizations are both less incentivized to innovate and less able to see potential innovations. These ideas should be encouraging to anyone at the beginning of their career: you are uniquely poised to discover and exploit new opportunities! So consider this an exhortation to go out and do so now (rather than waiting until you are older and more secure in your field).
Credit to Alex Tabarrok for introducing me to the Arrow replacement effect, and ChatGPT for some edits.