Determinants and Consequences of Decision Errors in Innovation Development: A Comprehensive Empirical Investigation on the Organizational and Individual Level

• Applicant: Professorin Dr. Monika Schuhmacher
• Subject Area: Accounting and Finance
• Term: from 2021 to 2024
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 463387112

Successful innovation development remains crucial for organizational survival. However, innovation development is inherently uncertain and thus susceptible to decision errors. In general, the two different types of decision errors comprise Type 1 error, i.e., an erroneous continuation, and Type 2 error, i.e., an erroneous termination. In this context, a Type 1 error represents a failed innovation and a Type 2 error a missed innovation. Whereas a Type 1 error causes concrete costs such as R&D and marketing efforts, Type 2 error predominantly causes opportunity costs in the form of foregone profits and market share. Since both decision errors emerge rather often, they are essential to unsuccessful innovation development and thus harmful to organizations.Due to the uncertainty surrounding innovation development, decision errors are inevitable to some extent. Moreover, measures reducing the likelihood of one error will automatically increase the likelihood of the other. Therefore, it is important to understand the determinants and consequences of both decision errors. Not only to be able to address decision error occurrence in desired fashion, but also to understand the implications that each error brings. As such, a mutual investigation of both decision errors is required to understand unsuccessful innovation development to a fuller extent.However, the status quo of the literature is lopsided and reveals research gaps with regard to the determinants and consequences of decision errors. Regarding the determinant side, there is only limited knowledge on how decision errors emerge as outcomes of organizational information processing. Prior literature highlights the role of organizational structure in determining decision error occurrence, but remains silent on other possible determinants. Regarding the consequent side, there is no explicit distinction between the origins of performance decrease, which usually triggers organizational behavior. As such, there is only limited knowledge on how Type 1 and Type 2 errors as different origins of performance decreases affect subsequent performance via likely distinct behavioral responses. Regarding the consequent side for individuals, however, there is only limited knowledge on how both decision errors as two salient adverse events affect individuals’ emotional response and subsequent behavior in innovation development.To address these research gaps, the proposed project’s key objective is to investigate Type 1 and Type 2 errors mutually across the organizational and individual level by employing a thorough empirical, mixed-methods investigation. Across three studies, the project sheds light on determinants and consequences of decision errors. By doing so, the project addresses recent calls for research on decision errors in innovation development, contributing to the theoretical advancement and practical understanding of Type 1 and Type 2 errors.

• DFG Programme: Research Grants
• International Connection: USA
• Cooperation Partners: Professor Kumar R. Sarangee, Ph.D.; Professor Dr. Gerard J Tellis