The Evolution of Technology and its Implications for Investment Policy - PowerPoint PPT Presentation

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The Evolution of Technology and its Implications for Investment Policy

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  1. The Evolution of Technologyand its Implications for Investment Policy NREL June 24, 2009 W. Brian Arthur External Professor, Santa Fe Institute and Intelligent Systems Lab, PARC

  2. There is no “-ology” of technology • We know about: • individual technologies, design process, adoption & diffusion, society & tech, etc. • We do not know about: • base principles • how technologies are invented • process of innovation • how to get competitive at technology © 2009 W. Brian Arthur

  3. © 2009 W. Brian Arthur

  4. A theory of evolution for technology? • Most attempts use Darwinian variation and selection • But that doesn’t work • Problem: “novel species” in technology don’t emerge that way © 2009 W. Brian Arthur

  5. © 2009 W. Brian Arthur

  6. An observation Technologies are constructed from existing technologies © 2009 W. Brian Arthur

  7. © 2009 W. Brian Arthur

  8. How technology evolves  Novel technologies are constructed from existing technologies and from capturing phenomena … These offer themselves as components—building blocks for the construction of further technologies © 2009 W. Brian Arthur

  9. Technology Builds Itself from Itself Technology is autopoietic or self-creating: • New elements build from existing ones • Complication builds from simplicity © 2009 W. Brian Arthur

  10. Aspects of this • Technology forms a network of things-giving-rise to things • The technologies active in the economy form an ecology • mutually supporting, always changing • New technologies set up niches for further technologies • These come from technologies themselves—and the obstacles they face • Problems as the answer to solution © 2009 W. Brian Arthur

  11. Implications of this outlook • Every technology adds potentially to the substrate of elements to construct from • New building blocks may affect many technologies • History is important © 2009 W. Brian Arthur

  12. Therefore difficult to evaluate a technology … • Because a technology may rise to further elements and further needs • Value of a technology not just its immediate payoff. Also what possibilities it gives rise to • De Forest’s triode vacuum tube • Andy Grove’s comment © 2009 W. Brian Arthur

  13. Further considerations: technologies evolve in a second sense … slide animation • They developas they are invested in • via better materials, better parts, complex workarounds • So their efficiency improves • (they show increasing returns) © 2009 W. Brian Arthur

  14. Choice of technology investment • Payoffs after 2years of investment: • Tech A: 10, 15, …  • Tech B: 42, 45, … • Choose Tech B © 2009 W. Brian Arthur

  15. Choice of technology investment • Payoffs after 4 years of investment: • Tech A: 10, 15, …  • Tech B: 42, 45, 48, 51, … • Continue with Tech B © 2009 W. Brian Arthur

  16. Choice of technology investment • Payoffs after 6 years of investment: • Tech A: 10, 15, …  • Tech B: 42, 45, 48, 51, 54, 55, … • Continue with Tech B © 2009 W. Brian Arthur

  17. Choice of technology investment • Payoffs after 8 years of investment: • Tech A: 10, 15, …  • Tech B: 42, 45, 48, 51, 54, 55, 55, 55, … © 2009 W. Brian Arthur

  18. Choice of technology investment • Payoffs after 10 years of investment: • Tech A: 10, 15, …  • Tech B: 42, 45, 48, 51, 54, 55, 55, 55, 55, 55, … © 2009 W. Brian Arthur

  19. But if the true payoffs had been known … • Payoffs after 10 years of investment: • Tech A: 10, 15, 25, 40, 50, 60, 70, 80, 85, 85, … • Tech B: 42, 45, 48, 51, 54, 55, 55, 55, 55, 55, … © 2009 W. Brian Arthur

  20. Discounting is also important • Payoffs after n years of investment: • Tech A: 10, 15, 25, 40, 50, 60, 70, 80, 85, 85, …  • Tech B: 42, 45, 48, 51, 54, 55, 55, 55, 55, 55, … • A high enough discount rate favors Tech B from the start © 2009 W. Brian Arthur

  21. More generally, with deliberate government choice … • You get a multi-armed bandit problem • with improving payoffs to investment in each arm • And may easily lock in to an inferior outcome © 2009 W. Brian Arthur

  22. Conclude from this … • Need to consider the whole set of consequences far as can be seen • Don’t narrow the search too soon © 2009 W. Brian Arthur

  23. 3. Technologies proceed from families of phenomena • E.g. electrical, nuclear, electronic, quantum, genetic, … • Form toolboxes or domains that change and morph • From each of these trains of technologies follow © 2009 W. Brian Arthur

  24. These domains • Are practiced as deep craft • Countries and regions that command these domains and their craft lead in technology • The larger economic changes are due to re-domainings © 2009 W. Brian Arthur

  25. Summary • Technologies build out as a network They are constructed from building blocks that themselves are technologies • Novel technologies create new needs • Active technologies form a mutually supporting, changing ecology of needs and solutions © 2009 W. Brian Arthur

  26. Valuation and investment policy not well-defined • Changes in building-block technologies may affect many technologies • Development investment brings increasing returns to use - Premature lock in to inferior solutions possible 6. But we can …  - Think of technologies as an ecology that fills out, provides building blocks, has missing pieces, sets up further problems - Explore options widely © 2009 W. Brian Arthur

  27. © 2009 W. Brian Arthur

  28. Laser printer © 2009 W. Brian Arthur