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The venturesome consumer: why is the United States a great home for innovators? Columbia University's Amar Bhide points to America's entrepreneurial consumers--customers willing to take big risks and try new products in the face of enormous uncertainty.

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The customer is king, right? Most of us who came from India, Taiwan, or China to the U.S. have been much more successful than if we had stayed at home, because we are close to the market here. We understand the market problem: l would understand what Bank of America's servers need better than someone sitting in Bangalore or Shanghai. And as long as the market is here, the U.S. will continue to be the place to innovate.

--Founder and CEO of a venture capital-backed business

Why is the United States a good place to innovate? The question has attracted considerable attention in recent years, particularly in Europe and Japan. Much of the writing on this topic emphasizes "supply side" factors such as the availability of venture capital, the initial public offering (IPO) market, the rule of law, and the enforcement of intellectual property rights. I will offer a complementary, "demand side" perspective, focusing on the frequently neglected role that consumers play in the innovation game.

My views have been informed by my studies over the last 20 years of new and emerging ("entrepreneurial") businesses. Obviously, entrepreneurs are more willing to innovate--and devote resources to marketing and selling their innovations--if they anticipate a large market for their product. Developers of products that have to be tailored to a particular market or require costly sales efforts are naturally concerned about whether customers will be receptive. But that's not all: I have observed the subtle role of customers, which goes beyond the decision of whether or not to buy. As we will see, they play an important "venturesome" role, rather like the one played by the developers of the products they use.

The Consumer as Risk-Taker

Entrepreneurship involves responsibility for uncertainty--facing unmeasurable and unquantifiable risks rather than betting on situations where the odds have been well established by prior trials. But it is not just the producers of an innovation who face uncertainty--purchasers also cannot form objective estimates of their risks and returns.

One source of uncertainty lies in whether an innovation actually does what it is supposed to do. A product that works in the lab or in a few beta sites may not work for all users because of differences in the conditions of its implementation; a product that works fine at...

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