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Estimating the ROI of science research

Science Magazine

U.S. R&D spending on basic research in constant 2005 dollars (top curve)

Looking at the history of science over the last couple of centuries, it seems evident to me that the benefits of scientific discovery have been heavy-tailed. A typical medical advance might save many thousands of lives. The discovery of penicillin (and its publicly supported development, leading to further antibiotics) saved hundreds of millions of lives. In a single century (the 20th), a confluence of fundamental discoveries in quantum mechanics and atomic structure led to all of modern electronics, the computer, and the Internet. This stemmed from what, in the 1920s and 1930s, were arcane areas of very basic science. Thus large, incredibly consequential discoveries do occur relatively often.

Science’s heavy tail allows us to expect even greater future discoveries, even if we cannot predict when they will occur or even what fields they will occur in. This might seem like a lot to load on two polls. However, many surrogates for measuring the distribution of returns from scientific discovery [such as patterns of patent citations (19, 20) or frequency of citation of scientific papers (21)] demonstrate a heavy-tailed pattern.

If basic research is a heavy-tailed investment opportunity, as I claim, then what is the optimal investment strategy for nations to make in it? It turns out that the optimal strategy is not just to put some money into the bank account and watch it grow by compound interest, nor is it to try to pick winners (as my previous bad investment advice to you suggested). The former of these strategies simply misses the heavy-tailed rewards, whereas the latter is almost certain to lead to gambler’s ruin, that is, losing everything on a mere temporary run of bad luck.

The optimal strategy for heavy tails is in effect the mathematical opposite of gambler’s ruin. I call it patient investor’s bounty. The player who stays in the game, investing on a continuing, sustainable basis, will be there to reap the rewards of the rare-but-huge heavy-tailed events (22). Stability of investment over the long run is likely to be the best predictor of success in this game.

Click here to read more from this November 15, 2013 Science magazine article by William H. Press.

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