Economic perspective on creativity

 

 

 

 

 

Target article:

 

Economic Perspectives on Creativity

 

Todd Lubart

Department of Psychology

Université Paris Descartes, France

 

Isaac Getz

Department of Psychology
ESCP Europe School of Business, France

 

 

 

     Through the motivation of popularization, comparing creative people in the psychoeconomics of creativity to investors on a particular market helps understanding which steps need to be crossed to apply one’s creativity. As far as the financial market is concerned, one main attribute is to jump on an asset’s opportunity. When investors see the potential of a financial product, service or company, they should not hesitate investing in it.

 

     Basically, this is more or less the same thing that is explained in this article. But “investing in ideas” has other ins and outs. When people invest in an asset, they have two options: taking risk, implying that the return on invest can be very valuable; or not taking that much risk and hoping to make profit, but lower than in the first condition. When investing in ideas, a risk-taking behavior is most of the time (maybe always) engaged since no mathematical model can be drawn to predict the perspective of return on invests. Some acumen and match between the creative person and the investor can be good signals, but this kind of investment is the archetype of decision under risk and uncertainty. In addition, prospect theory (Daniel Kahnemand and Amos Tversky, 1979) exhibits the pattern of behaviors people are subject to when gains and losses are at stake. In the field of creativity, the pattern can be the same. Investors may pursue projects when they are facing losses circumstances whereas they may be risk-averse when they are confronted to potential gains in other ideas, fields or sectors. As far as creativity is concerned, one principle rules the success of investing in ideas: Buying low – Selling high[1].

 

Parallel with scientific methods

 

     It is interesting to make the parallel with scientific and research methods and theirs outputs. We could extend it to a field that is well-known by students working in the research field. Emancipating from the constraints of conservatism, often called rigor to protect from any criticism – wrongly, as far as I am concerned – could allow new ideas and new methods to emerge in an environment where knowledge and work meet. This is exactly what I feel about the link between economics and psychology. I feel that a domain is more “open” than the other. I feel that economists are often satisfied with replicating the same methods and procedures that have certainly proven their success, but that may no longer be consistent with nowadays’ expectations.

This is precisely what is meant by “outdated” theories. If knowledge seems mandatory in order to not replicate past errors or already existing ideas, accumulating knowledge and especially formal education is not always in favor of creativity (Daniel Rubenson and Mark Runco). Mathematically speaking, there is a tangent in the correlation curve between knowledge and creativity. After this point, the marginal utility of creativity decreases with knowledge, because formatted thoughts lead to less flexibility in the reasoning process. This relationship can be compared to a bad return on invest after having accumulated resources and knowledge in the same field, in the same education type (or rigor). In the wake of this potential negative relationship, knowledge must be questioned in the sense that some theories may overlap, making older become outdated, or non-accurate anymore. Here, critical mind and flexibility of thoughts play a key-role in the creative process.

In my opinion, the same picture exists in companies. Big firms with high knowledge and skills requirements often hire people who have the same background, or the same supposed-background, since they come from the same school. These companies like to have formatted minds and very efficient spirits to develop their activity. But more and more, we witness some managers who complain about the lack of creativity or originality of their late recruits. In the same sense, in France, if business school were, and may still are – but less -, the reference for efficiency and good skills, universities or other formations acquire new and better reputation thanks to the difference in the formation and the non-formatted brains that come out of it.

 

Chance and hazard

 

     Authors speak about “environmental circumstances favorable to creativity” but they do not mention the environmental circumstances that enable creativity to set up and transform hypothetical ideas or project into genuine products or services. We can think of several factors that need to meet each other in order to pursue the success of a creative idea. The question of chance and hazard.
An idea can be as “good” and valuable as it can be, if the creative person is not at the right place, at the right time[2], the project may never exists.

 

     Despite the talent one can have, the work he can have undertaken, the deep analysis[3] he may have performed, some other conditions that do not only depends on tangible facts and work need to meet.
To extend this paper, we could make a literature review of ideas that exist nowadays but that were conceptualized a long time before and that could not emerge because of this non-satisfaction of the previous conditions.

By “chance” or “hazard” we could also include the psychological measure of risk-aversion and risk-seeking behaviors of investors. For example, one can have a revolutionary idea but investors may not put money in it because they are too risk-averse. This point has been developed in the article, and mentioned above, but it could be interesting to extend it to some true facts of actual measurements that have been done[4]. If you do not have the means to develop (materially) your idea or service, you also need to count on someone who is going to give you a chance because he believes in you or in your idea. And this person may be the only one you are going to meet for this precise idea. This is all a matter of seizing the opportunity.

 

The key concept: Human Capital

 

     It is very accurate to bring human capital into the creativity concept. When a production is at stake, almost every parameters seem to be replaceable: machines, workers, investment from other sources and so on. But as far as creativity is concerned, creative men or women cannot be replaceable on the same basis. To what extent similar ideas can be found into different people’s mind? Each one’s “portfolio” of psychological resources is genuine and singular. So I found it very relevant to stress at first the human capital.

There are three levels on which creative performance depends on:

 

• Individual ability consistent with the resources to be engaged for the creative task

• Individual engagement of the previous resources

• The market demand: inner consistency between an individual’s portfolio and the resources to be engaged.

 

     The core question is then how to increase this human capital? The key-argument mentioned in the review is training. Of course, when you train, you acquire techniques that help develop your outputs. But, to me, this acquisition of techniques is paradoxical with the creative mind. For the same reason too much knowledge makes creativity decrease, too many techniques impoverish creativity because there is less space for spontaneity[5]. And creativity should not be bounded by any method, technique, or rigor. Being conscious that I am expanding the concept of training to criticize it, authors make the relevant distinction with the marginal utility of training for resources. So here the psychoeconomics approach could be developed in the sense that training has to be performed for the means (resources) and not the output (creativity) and this training can have a cost, as far as the economic concept of marginal utility is concerned.

 

Creativity feeds creativity

 

     On the market for creativity, there is no golden rule for success and emergence of creative ideas, despite some favorable conditions, such as the time period (war, economic growth, financial crisis and so on), the perspectives (do governments and mentalities see the potential of a good idea on the long-term or do they focus more on the short-term?), the investment context and other variables. On this precise point, I cannot help thinking of another concept that can trigger creative thinking: the auto maintenance of creativity, based on the innovation cluster of Joseph Schumpeter. His economic approach lies on the virtuous circle that one innovation triggers, by essence, other innovations, either because they become necessary, or because new ideas emerge from the previous ones. This possible extension of the present paper could explore for instance every innovations that the Internet network’s emergence gave birth to. These would build a cluster and creativity fed creativity.

 

            On another issue, authors also rightly mention the creativity that arises from past creative success[6]. Considering this eventuality, we can infer that creative people that encountered success will be more inclined to pursue their creative ideas in the future. We can also extend it to the role of investors. Indeed, once an investment has been released to a successful creative concept (success evaluated ex-post), these investors’ risk preferences may change in favor of risk-taking behaviors with those creative persons. 

 

A true economic concept

 

     All along the Encyclopedia, the parallel is done with other economic concepts. It appears that creativity can be treated as any micro and macroeconomic notions. Because of its inner characteristics: its market, its resources, its costs (transactional and informational), its formation and so on, creativity is a fundamental psychoeconomics image. But, unlike ephemeral concepts or products bounded by time and technology (actually it does create technology), creativity has always existed and will always exist. Because it does not necessary rely on any other mean than human brain. Creativity is the reflection of human ability to think, project and create.

Creativity is also not limited to a particular field. It can be expressed in technology, in art, in politics, in religion, in mathematics and so on. In some particular fields, human creativity is considered to be the trigger of economic endogenous growth[7]. From that perspective, nothing is fixed. When ideas are born and conceptualized, the framework for their expression needs to be favorable. To me, companies must release hierarchical spaces and organizational constrains; institutions must continue to allocate funds for research and development (incompressible mean); and most important of all, men must continue to think creative to pursue the writing of progress.

 

 

 

 

 

 

 

[1] When investors find a bargain that seems interesting to them, it is precisely interesting and potentially profitable if they can by the asset for a cheap price, because it is not democratized yet or it has not proved to be valuable yet; and sell it at a high price when the asset “gained one’s spurs”, either thanks to its power, or simply because of speculation. Regardless the nobility of the asset, the result of buying low-selling high is as described.

 

[2] See the example (in the article) of the internet bubble who enabled start-ups to see light at this precise time (1990’s and 2000’s).

 

[3] Fundamental analysis: the main elements of an idea are analyzed in terms of their quality, originality, consistency with expectations and so on. The critical analysis that covers a kind of market research to see where the audience can be the most receptive.

 

[4] Mark Grindblatt and Matti Keloharju concluded that foreign investors are more inclined to engage themselves in risky behaviors and that successful past investments support the idea of potential new investments.

See also Shiv et al. for the correlation between the investment behavior and emotions.

 

[5] See Moreno (1955): spontaneity-creativity as a twin concept.

 

 

[6] The chosen example is that “a grant may be more likely to be awarded to a researcher who already had a grant”, in order to illustrate the auto-feed of creativity.

 

[7] See the example of Romer where dematerialization and computer software enable to figure some unbounded growth. 

 

 

 

 

 

References:

 

Grindblatt, M., & Keloharju, M. (2000). The Investment behavior and performance of various investor types: a stydy of Finland’s unique data set. Journal of Financial Economics: Vol. 55, Issue 1, pp: 43-67.

 

Kahneman, D., Tversky, A. (1979). Prospect Theory: An Analysis of Decision Under Risk. Econometrica, 47(2), pp. 263-291.

 

Moreno, J.L., (1955). Theory of Spontaneity-creativity. Sociometry and the Science of Man, Vol. 18, No. 4, pp: 105-118.

 

Rubenson, D., Runco, M. (1992). The psychoeconomics approach to creativity. New Ideas in Psychology, Vol. 10, Issue 2, pp: 131-147.

 

Schumpeter, J. (1954). L’Histoire de l’Analyse Economique.

 

Shiv, B., Loewenstein, G., Bechara, A., Damasio, H., Damasio, A. R. (2005). Investment Behavior and the Negative Side of Emotion. Psychological Science, Vol. 16, No. 6, pp: 435-439