Social Reality, the Boundaries of Self-Fulfilling Prophecy, and Economics

SMG Working Paper No. 19/2008

46 Pages Posted: 30 Jun 2008

See all articles by Teppo Felin

Teppo Felin

University of Oxford - Said Business School

Nicolai J. Foss

Bocconi University - Department of Management and Technology

Date Written: June 25, 2008

Abstract

Organizational scholars have recently argued that economic theories and assumptions have adversely shaped management practice and human behavior, leading not only to the incorporation of trust-eroding market-mechanisms into organizations but also unnecessarily creating self-interested behavior. A number of highly influential papers have argued that the self-fulfilling nature of (even false) theories provides the underlying mechanism through which economics has adversely shaped not just social science but also management practice and individual behavior. We question these arguments, and argue that there are important boundary conditions to theories falsely fulfilling themselves, boundary conditions that have hitherto been unexplored in organizational research, and boundary conditions which question the underlying premises used by organizational scholars and social scientists to attack economics. We specifically build on highly relevant findings from social psychology, philosophy and organizational economics to show how (1) objective reality and (2) human nature provide two important boundary conditions for theories (falsely or otherwise) fulfilling themselves. We also defend organizational economics, specifically the use of high-powered incentives in organizations, and argue that self-interest (rightly understood) facilitates in creating beneficial individual and collective and societal outcomes.

Keywords: organization theory and social reality, organizational economics, philosophy of social science

Suggested Citation

Felin, Teppo and Foss, Nicolai J., Social Reality, the Boundaries of Self-Fulfilling Prophecy, and Economics (June 25, 2008). SMG Working Paper No. 19/2008. Available at SSRN: https://ssrn.com/abstract=1151206 or http://dx.doi.org/10.2139/ssrn.1151206

Teppo Felin

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

HOME PAGE: http://sites.google.com/site/teppofelin2/

Nicolai J. Foss (Contact Author)

Bocconi University - Department of Management and Technology ( email )

Via Roentgen 1
Milan, MI 20136
Italy

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