A rational model of innovation by recombination

Abstract

Human learning does not stop at solving a single problem. Instead, we seek new challenges, define new goals, and come up with new ideas. What drives people to disrupt the existing conceptual landscape and create new things? Here, we examine the decision to create new things under different levels of potential returns. We formalize innovation as stochastically recombining existing ideas, where successful and more complex combinations generate higher returns. This formalization allows us to cast innovation-seeking as a Markov decision process, and derive optimal policies under different settings. Data collected through an online behavioral experiment confirm our prediction that people should invest more time and effort in seeking innovations when they know the chances of success are high and the potential new ideas would be rewarding. However, people also deviate from being optimal, both innovating more and less than they should in different settings.