“Knowledge is power.” This is usually attributed to Francis Bacon, who said something similar enough. He was roughly a contemporary of Descartes and went all in in this “let’s figure things out ourselves” idea. So he went ahead and created the scientific method.
His stated purpose, in creating the method, was to “command nature” by gaining knowledge about “her”.
He was operating in a model in which knowledge leads to power.
Unbundling, it states that prediction leads to control.) This is what certainty is about as well, if you have certainty in knowledge, then you can bend reality to your will – Descartes’ aim.
The other way to get control, without prediction, without certainty; is to go for control directly: Effectual thinking.
Following I present Effectuation, contrast it to Causation (Causal, teleological, means-end rationality), and suggest their domains of application.
Effectuation
Effectuation (1) is a theory of how expert entrepreneurs act. It originated due to a think-aloud study by a student of Herbert Simon that aimed to understand what are the commonalities and differences in the decision making processes of a group of expert entrepreneurs.
The answer happened to be that they share much, in fact, a whole hitherto unknown, approach to problem solving.
This approach was baptized Effectuation, and, what is of more theoretical interest, it happened to be a direct inversion of Rational Choice theory.
(Rational Choice theory is a normative theory choice of judgement and decision-making. That is, a theory of how people ought to make choices and judgments. It imposes consistency conditions on choices, values, and beliefs. According to it, one is rational to the extent that one abides to these conditions. RCT holds that if agent’s preferences respect certain axioms, then people are behaving as if they were maximizing a utility function u over which their preferences are defined. That is, to say, given a set of options, they choose their preferred option. I had been really generative as a model for social and economic behavior.)
Effectuation and Causation
Sarasvathy distinguishes Effectuation from Causation. Effectuation is, broadly, the type of thinking that expert entrepreneurs use (but also, that humans use to design artifacts, products, firms, and marktets), and Causation is, broadly, the type of thinking that RCT formalizes.
- Causation processes take a particular effect as given and focus on selecting between means to create that effect. It is teleological.
- Effectuation processes take a set of means as given and focus on selecting between possible effects that can be created with that set of means. It is teleonomical.
Below I contrast Effectuation or Effectual reasoning, and Causation, or Causal reasoning, based on their problem, process, principles, and logic.
The problem
Causal rationality begins with pre-determined goal(s) and means and aims to identify the optimal route to the goal. Effectual reasoning begins with a set of means and allows goals to emerge over time from the imagination and commitments of the stakeholders.
The process
All entrepreneurs start with three types of means: (1) Who they are, (2) What they know, and (3) Whom they know. Using the aforementioned means, entrepreneurs start imagining and implementing what can be created. In this process goals are allowed to emerge as actions are taken and further means are gathered.
“Who I am refers” to the collection of traits, characteristics, dispositions, and abilities of entrepreneurs. “What I know” refers to the knowledge, experience, and possible expertise of the entrepreneur. The third mean, “Whom I know”, refers to the social and business networks of the entrepreneur.
The principles
The Affordable Loss Principle
Causational logic suggests that decision-makers ought to maximise their expected value. Entrepreneurs focus on minimizing loss.
The Crazy Quilt Principle (Strategic Partnership)
Effectuation outlines a reduction of competition and uncertainty through the use of strategic partnerships. (Instead of competitive rationality.)
The Make-Lemonade Principle (Leverage Contingencies)
Effectuation is a logic for environments with Knightian uncertainty (That is, true unpredictability).) entrepreneurs explore these spaces by leveraging surprises instead of seeing them as impediments to a goal-oriented search process focused on the exploitation of pre-existing knowledge.
The logic
The logic of effectual reasoning is different from that of causal reasoning. In causal reasoning, To the extent that we can predict the future, we can control it. In effectual reasoning, To the extent that we can control the future, we do not need to predict it.
| Issue | Effectuation | Causation |
| Where to start | Means. | Goals. |
| Risk, return, and resources | Affordable loss. | Expected return. |
| Attitude towards others | Partnership. | Competition. |
| Surprise | Leverage surprises. | Avoid surprises. |
| Underlying logic and what to do | Co-create. Cannot predict: Control. | Plan. Predict to control. |
(2)
The wrong way of thinking?
The scientific method was developed with the aim of controlling nature, and it has succeed , in the domain of the natural sciences. The same has not been the case for the social sciences.
I’m very partial to arguments about how the social sciences are younger (Sociology has been around for 100 years, and physics for 500.) and this could be why they haven’t started gaining control yet (or maybe because the subject is harder, or reaching the methodology is more difficult, or something else).
But, maybe, we’ve been thinking about this from the wrong direction? Maybe we don’t need predictive knowledge in the social sciences, to control the realm we aim to control (social reality/artificial realm)? Maybe we can get control directly by employing and harvesting effectual thinking?
I’m warming up to this idea. The belief that we can control the future without needing to predict it obtains in a particular problem space: a Knightian-Marchian-Weickian problem – where the future is unpredictable, goals are ambiguous, and every action changes the environment and your goals. The first one obtains if you believe that the future – in the social realm – is made by the actions of humans, and not discovered. The third obtains if you think theories act as engines, not as cameras. (If you don’t please let me know about how you think Marxism did not impact the world.)
It seems that the natural sciences deal with a problem space that is neither Knightian nor Weickian: you can know things, and your actions don’t change it (for the most part).
- Sarasvathy, S. D. (2001). Causation and effectuation: Toward a theoretical shift from economic inevitability to entrepreneurial contingency. Academy of management Review, 26(2), 243-263; Sarasvathy, S. D. (2008). Effectuation: Elements of entrepreneurial expertise. Edward Elgar Publishing. ISO 690
- Read, S., & Dolmans, S. (2014). 11 a review on effectuation. Handbook of Research On Entrepreneurship: What We Know and What We Need to Know, 238.
- Read, S., & Sarasvathy, S. D. (2005). Knowing what to do and doing what you know: Effectuation as a form of entrepreneurial expertise. The Journal of Private Equity, 9(1), 45-62.
Future:
- Sarasvathy, S. D., & Venkataraman, S. (2011). Entrepreneurship as method: open questions for an entrepreneurial future. Entrepreneurship Theory and Practice, 35(1), 113-135.
- Conceptual clarification: rationality, rct, causal reasoning, effectuation, efectual logic, effectual thinking
- Physics envy is maybe not a problem once you show results?
