  We consider how to optimally allocate investments in a portfolio of competing
technologies using the standard mean-variance framework of portfolio theory. We
assume that technologies follow the empirically observed relationship known as
Wright's law, also called a "learning curve" or "experience curve", which
postulates that costs drop as cumulative production increases. This introduces
a positive feedback between cost and investment that complicates the portfolio
problem, leading to multiple local optima, and causing a trade-off between
concentrating investments in one project to spur rapid progress vs.
diversifying over many projects to hedge against failure. We study the
two-technology case and characterize the optimal diversification in terms of
progress rates, variability, initial costs, initial experience, risk aversion,
discount rate and total demand. The efficient frontier framework is used to
visualize technology portfolios and show how feedback results in nonlinear
distortions of the feasible set. For the two-period case, in which learning and
uncertainty interact with discounting, we compare different scenarios and find
that the discount rate plays a critical role.
