Grants vs. prize glory? We’re using RCTs to find the optimal financial formula for breakthrough innovation.
Innovation is essential to modern progress, whether it is reversing chronic health conditions or tackling the climate crisis. Since the Longitude Prize in 1714, challenge prizes have been a proven mechanism for incentivising the cutting-edge innovation required to solve complex social problems.
But how do we know if we are getting the design right? This question lies at the heart of our latest project, which has seen Challenge Works/Nesta secure a competitive grant from the UK Metascience Research grants programme - a £5 million fund co-funded by the ESRC and Open Philanthropy.
We are thrilled that our team, led by CW/Nesta, and working alongside leading academics from the University of California San Diego and policy experts from the Innovation Growth Lab, has been selected as one of the successful projects in the first cohort of Metascience awardees.
The known power of prizes and the evidence gaps
Challenge prizes, that define criteria in advance to spur innovation and reward whoever can first or most effectively solve the problem, are recognised as essential tools in the innovation ecosystem, offering distinct advantages over traditional funding mechanisms:
- Attracting the unexpected: prizes excel at drawing in a diverse pool of solvers, reaching unconventional individuals and organisations. This is critical for high-uncertainty problems where the solution pathway is unclear.
- Catalysing change: challenge prizes accelerate progress towards ambitious goals, leading to breakthrough innovations and raising public and media awareness of neglected issues. Furthermore, non-monetary elements like prestige, validation, and capacity building often prove more valuable to participants than the cash award alone.
- Driving high leverage: prizes efficiently transfer risk from the funder to the innovator by paying only for successful achievement. This mechanism often results in significant leverage of R&D investment, driving 10 to 40 times the prize purse in cumulative expenditure by participating teams.
- Building the ecosystem: prizes operate as a powerful vehicle for human capital, ensuring innovators thrive beyond the winners. The prize process improves the skills of participants and contributes to the establishment of communities of practice and solver/innovator networks.
- Diverse motivations: critically, participants are often motivated less by the cash purse than by the non-monetary incentives (prestige, reputation, and publicity), which provide a valuable credentialing effect for nascent solutions and teams. This combined with support and networking acts as a springboard for commercialisation, enabling finalists and promising teams to attract follow-on capital and continue developing their solutions much quicker than they would have otherwise, regardless of the ultimate outcome.
Prizes are a powerful reward mechanism with a strong historical track record. However, in terms of innovation funding more widely, policy and design decisions often rely on compelling anecdotes rather than systematic evidence - the former chair of UKRI has remarked on how innovation and R&D policy “tends to turn on gut feel of the individuals involved, than on hard evidence and analysis”. To fully capitalise on the potential of mechanisms like prizes, we need to build and improve the empirical data on the effectiveness and the long-term impact of these funding tools. This focus on generating evidence is essential for systematic learning; to allow us to continually improve the design of interventions for innovation and to maximise the return from public funding.
The metascience imperative: moving beyond "gut feel”
This urgent need for evidence is why the establishment of the UK Metascience Unit by the Department for Science, Innovation and Technology (DSIT) and UK Research and Innovation (UKRI) is so vital.
The Unit’s vision is to apply the scientific method systematically and routinely to the systems, policies, and processes of science and innovation itself. The goal is to move beyond relying on the "gut feel" of individuals to determine R&D strategy.
Challenge Works is perfectly positioned to contribute to this mission. Having designed and delivered over 100 challenge prizes, distributing approximately £265m and mobilising over 17,500 innovators, we are now turning our own practice into an experimental platform for rigorous social science inquiry.
Our metascience project: What are the optimal financial structures for spurring innovation?
Our research project, "Financial structures for enabling innovator participation and success: experimental evidence from challenge prizes", tackles the core question of how financial incentives should be structured to best support innovation in a prize context.
We are addressing the critical policy trade-off:
- Pure prizes (reward after the fact): these rewards are conditional on achieving a successful outcome (ex-post) and powerfully incentivise novel, high-risk innovation. However, they may deter entry from financially constrained innovators who cannot absorb the initial development costs.
- Staged-financing (grants + rewards): these combine up-front grants with later reward incentives. This structure reduces the financial risk for participants and can broaden the pool of innovators, but the incentive for pursuing radical, high-value ideas may be lessened.
To generate actionable, robust evidence, we will deploy RCTs within active challenge prizes run by Challenge Works. This rigorous, causal methodology - the gold standard in determining attribution - will allow us to compare these two models and understand when and for whom each approach generates better results. The findings are intended to directly inform innovation policy and R&D funding practices.
A call to action: partner with us to build the evidence base
If you are a foundation, philanthropic organisation, or mission-driven partner looking to deploy a challenge prize to solve a pressing problem now is the perfect time to partner with Challenge Works.
We have £100k to put towards the prize purse of this experiment.
By collaborating with us, your challenge prize will not only attract diverse talent and drive high-impact solutions but will also become an integral part of this world-leading research, generating causal, policy-relevant evidence that improves innovation funding globally. You can solve your problem while contributing to the wider societal goal of optimising how research and innovation are funded.
Contact Challenge Works today to discuss how your next innovation challenge can become the foundation for groundbreaking metascience research and set a new standard for R&D funding effectiveness.
