Finance and economic theory applied to Innovations and Entrepreneurship

R&D as Option… Extension to Entrepreneurship

J.-P. Bouchaud and D. Sornette, "The Black-Scholes option pricing problem in mathematical finance : Generalization and extensions for a large class of stochastic processes", J.Phys.I France 4 (6), 863-881 (1994)

Portfolio approach to innovation (merging)

Are large-scale research programmes that include many projects more productive than smaller ones with fewer projects?

‘Economies of scale’ is here understood according to the criterion that the probability to earn more than any fixed factor proportional to its size N is larger for the merged company C = A + B of size NA + NB than for any of the two component companies A and B with size NA and NB. In essence, the mechanism underlying the ‘economies of scale’ is that a very large payoff from a successful project can pay for all of the losing projects. (D. Sornette, Economy of scales in innovations with block-busters, Quantitative Finance 2, 224–227 (2002)); Based on Generalized Central Limit theorem and Extreme Value Theory

New theory of decision making (group utility and non-separability of alternative scenarios)