Causation and Effectuation: Toward a Theoretical Shift from Economic Inevitability to Entrepreneurial Contingency

Abstract

Studies the theory of effectual reasoning with focus on the creation of firms in nonexistent or not-yet-existent markets. Effectuation takes "a set of means as given" and focuses "on selecting between possible effects that can be created with that set of means." The effectuation process is actor dependent whereas the causation process is effect dependent. Some key characteristics of effectuation are: selection criteria based on affordable loss or acceptable risk, excellence at exploiting contingencies, and explicit assumption of dynamic, nonlinear, and ecological environments. The theoretical works of March, Mintzberg, and Weick are explored to identify connections between their work and the proposed theory of effectuation. Recent empirical works that fall outside of the traditional causation models are also discussed. The four principles of effectuation are affordable loss, strategic alliances, exploitation of contingencies, and control of an unpredictable future. Based on these principles, a series of testable hypotheses are presented. The hypotheses consider the role of effectuation at different levels including the economy, the market or industry, the firm, and the founders/decision makers. The theory of effectuation advanced in this analysis concludes that the essential agent of entrepreneurship is the effectuator. (SRD)

Keywords: Causation, March, James G., Mintzberg, Henry, Weick, Karl E., Reasoning, Decision making, Individual control, Cognition, Risk management, Strategic alliances, Uncertainty, Effectuation, Causation, Contingency management