Amanda D. Francoeur, email@example.com
PASADENA, Calif. – According to a study performed by researchers at the California Institute of Technology, more people consider buying and selling components within a market than developing an entire intellectual discovery themselves and patenting it. The reason is that confidence is a principal factor when patenting an idea, and most people don’t believe their ideas are superior to those of the majority.
As determined by the heuristic study, the patent and market systems both promote intellectual discovery, and they are equally profitable. However, in the patent system, the only one who benefits is the person who applied for the patent first, while in the market system, discovery is coordinated, and the second or third person also can receive revenue by buying and selling shares.
“The idea is that buying and selling is the right way to monetize an invention,” said Peter Bossaerts, the William D. Hacker Professor of Economics and Management at Caltech. “Without markets, it’s hard to see how any intellectual discovery could be worth anything,” he added.
Bossaerts designed multiple experiments varying in degree of complexity to determine an individual’s motivation to invent. He introduced the participants to instances that portrayed a patent system and a free market system, and their solutions were assessed.
KP is NP
The first experiment resembled a patent system, or prize system, where participants were asked to find the optimal solution for a study called the knapsack problem (KP). “Intellectual discovery is cognitively extremely difficult,” Bossaerts said. Being so, the KP was deemed NP (nondeterministic polynomial)-complete – where the solutions of instances of KP can be verified in polynomial time and are regarded as the most difficult of complex theories, which cannot be solved quickly or easily, even with computer technology.
The experiment was intended to replicate the process of patenting an idea because both deciphering the KP and actually inventing involve taking multiple things and putting them together in ways that make them correspond with one another rather than the alternative of just adding the things up. “It is best described as a situation where one indeed needs to put things together, but the discovery really depends on what pieces one puts together,” Bossaerts said. “That is, two half-baked ideas (pieces) do not necessarily make one great idea (the discovery),” he added.
Applicants were given items, each with a particular value, which they had to fit within the knapsack. The idea was to put 10 to 12 items into the sack such that the highest possible total value was achieved, but the sack had a weight constraint, limiting the number of items that could fit. Each person had to determine the solution within a seven-minute time limit, and the first one to do so was compensated with $66.
One way of solving the problem was to fit as many of the highest-value items as possible into the container until the maximum weight was reached. This type of system is the simplest but is also known as a greedy method.
A second experiment was equivalent to the knapsack problem, but it included also an electronic stock market where participants were able to buy and sell their items anonymously. All participants were given an equal number of shares for each of their items, and within a 14-minute time period, they had to trade effectively and try to solve the KP again.
Once the market closed, shares of items that were a part of the optimal solution received a dividend of $1, and those not in the optimal solution became worthless. In this instance, all of the participants received an amount of money dependent upon the number of shares of the valued items still left after time was up.
Upon completing four cases for each study, the researchers found that, in all but one instance, at least one person came up with the right solution to both problems. As a result, a reward of $66 was given each time to the winner in the market system. The difference between the studies was the quantity of participants who found the optimal solution. Twenty-seven percent of the market system participants reported a solution compared with only 17 percent of the patent system participants.
The market system has distinct benefits compared to individual discovery: Everyone is entitled to shares of the components, an intellectual scope is nonexistent so as not to be misconstrued, and no licensing agreements are involved.
Bossaerts believes that people hold the assumption that they are unlikely to come up with a discovery before someone else does, and because of this way of thinking, people turn to trading – a less competitive approach to discovery. “What discourages people in the patent system is that they do not think they are the absolute best … but they do think they’re better than the median,” he said.
An argument against the market system is that many people are trying to attain the same solution, which ultimately stifles discovery. However, according to the researchers, discovery through problem solving and trade could result in partnerships that may come up with a final solution much faster.
“Once you have enough well-organized markets, you don’t need patents anymore to foster innovation,” Bossaerts said.