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Entrepreneurial Action and the Role of Uncertainty in the Theory of Entrepreneur

January 2006
Academy of Management Review 31(1)

January 2006
31(1)

DOI:10.5465/AMR.2006.19379628

Authors:

Jeffery S. McMullen

Indiana University Bloomington

Dean A. Shepherd

University of Notre Dame

By considering the amount of uncertainty perceived and the willingness to bear uncertainty concomitantly, we provide a more complete conceptual model of entre- preneurial action that allows for examination of entrepreneurial action at the indi- vidual level of analysis while remaining consistent with a rich legacy of system-level theories of the entrepreneur. Our model not only exposes limitations of existing theories of entrepreneurial action but also contributes to a deeper understanding of important conceptual issues, such as the nature of opportunity and the potential for philosophical reconciliation among entrepreneurship scholars.

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ENTREPRENEURIAL ACTION AND THE ROLE

OF UNCERTAINTY IN THE THEORY OF THE

ENTREPRENEUR

JEFFERY S. MCMULLEN

Baylor University

DEAN A. SHEPHERD

Indiana University

By considering the amount of uncertainty perceived and the willingness to bear

uncertainty concomitantly, we provide a more complete conceptual model of entre-

preneurial action that allows for examination of entrepreneurial action at the indi-

vidual level of analysis while remaining consistent with a rich legacy of system-level

theories of the entrepreneur. Our model not only exposes limitations of existing

theories of entrepreneurial action but also contributes to a deeper understanding of

important conceptual issues, such as the nature of opportunity and the potential for

philosophical reconciliation among entrepreneurship scholars.

Entrepreneurship requires action. Whether

conceptualized as the creation of new products

or processes (Schumpeter, 1934), entry into new

markets (Lumpkin & Dess, 1996), or the creation

of new ventures (Gartner, 1985), entrepreneur-

ship typically involves a mesolevel phenome-

non in which personal initiative influences

system-wide activity and outcomes (Kilby, 1971;

Stevenson & Jarillo, 1990). To be an entrepreneur,

therefore, is to act on the possibility that one has

identified an opportunity worth pursuing.

Theories of entrepreneurship that embrace

this perspective traditionally have taken one of

two forms. The first form is devoted to a system-

level approach concerned primarily with how

the economic system functions. Proponents of

these theories argue that the health of the econ-

omy depends on the pursuit of opportunities by

prospective entrepreneurs (e.g., Kirzner, 1973;

Schumpeter, 1934). Who acts is inconsequential

as long as someone does. Thus, the central issue

is whether entrepreneurial action occurs. The

second form is devoted to an individual-level

approach concerned primarily with how pro-

spective entrepreneurs go about acting. These

researchers seek to explain why some individu-

als are more likely than others to pursue possi-

ble opportunities for profit (e.g., Begley & Boyd,

1987; Sarasvathy, 2001a; Shane, 2000; Shaver &

Scott, 1991). Like before, entrepreneurial action

takes center stage, but this time more in terms of

how it occurs and who does it than whether it

occurs.

The conceptual overlap of these approaches

suggests that they are complementary. In fact, re-

searchers of the individual-level approach have

frequently borrowed from theories grounded in

the system-level approach (e.g., Kaish & Gilad,

1991). However, this can lead scholars to rely on

models of entrepreneurial action that are incom-

plete when applied at a level of analysis other

than that intended by the theorist. Accordingly,

our purpose in this article is twofold. First, we

demonstrate that economic theories of the entre-

preneur are theories of action proposing those el-

ements that enhance and hinder individuals from

acting entrepreneurially. Although these models

may be sufficient for examining entrepreneurial

action at the system level, they can collapse when

applied at the individual level, making them sus-

ceptible to confounded theorizing and inconclu-

sive or misleading empirical findings. This neces-

sitates our second purpose: to offer a perspective

that allows for examination of entrepreneurial ac-

tion at the individual level of analysis while re-

maining consistent with a rich legacy of system-

level theories of the entrepreneur.

Because action takes place over time, and be-

cause the future is unknowable, action is inher-

We acknowledge Jeff Covin, Denis Gregoire, Duane Ire-

land, P. Devereaux Jennings, and three anonymous review-

ers for their valuable comments on an earlier draft of this

paper.

姝Academy of Management Review

2006, Vol. 31, No. 1, 132–152.

132

ently uncertain (Mises, 1949). This uncertainty is

further enhanced by the novelty intrinsic to en-

trepreneurial actions (Amabile, 1997; Smith &

DiGregorio, 2002), such as the creation of new

products, new services, new ventures, and so

forth (Gartner, 1990; Schumpeter, 1934). There-

fore, it is no surprise that uncertainty constitutes

a conceptual cornerstone for most theories of the

entrepreneur. However, the role this uncertainty

plays in preventing entrepreneurial action has

remained a matter of debate. As a result, two

research streams have emerged, each inspired

by alternative conceptualizations of uncertainty.

The first stream focuses on the amount of un-

certainty perceived and frequently discrimi-

nates those who decide to act entrepreneurially

from those who do not as a matter of differences

in knowledge (e.g., Busenitz, 1996; Gaglio & Katz,

2001; Kaish & Gilad, 1991; Kirzner, 1979). Thus,

the amount of uncertainty is considered to be

the barrier between prospective entrepreneurs

and entrepreneurial action. The second stream

highlights the willingness to bear uncertainty

and typically proposes that those who decide to

act entrepreneurially are distinguishable from

those who do not owing to differences in moti-

vation, attitude, or risk propensity (e.g., Douglas

& Shepherd, 2000; Knight, 1921; Schumpeter,

1934). In this scenario, an unwillingness to bear

uncertainty is deemed responsible for prevent-

ing prospective entrepreneurs from engaging in

entrepreneurial action.

Because an individual must ultimately act to

become an entrepreneur, and because action

involves knowledge and motivation (Higgins &

Kruglanski, 2000), we propose that each stream

merely emphasizes a different aspect of the un-

certainty experienced in the decision to act

entrepreneurially. Therefore, each conceptual-

ization of uncertainty is representative of a con-

struct that is not only reconcilable with its coun-

terpart but also necessary for further theorizing

about entrepreneurial action.

By demonstrating that action is central to

most theories of entrepreneurship, we distill the

various elements of action that must be consid-

ered concomitantly when determining whether

one will act entrepreneurially. These include

knowledge (as it relates to the amount of uncer-

tainty perceived), motivation (as it relates to the

willingness to bear uncertainty), and, arguably,

a stimulus. We propose that each of these ele-

ments produces a belief that is qualified by un-

certainty. This uncertainty takes the form of

doubt, which prevents action by undermining

the prospective actor’s beliefs regarding (1)

whether an environmental stimulus presents an

opportunity for someone in the marketplace, (2)

whether this opportunity could feasibly be en-

acted by the actor, and (3) whether successful

exploitation of the opportunity would ade-

quately fulfill some personal desire. Drawing on

these elements, we then generate a two-stage

conceptual model of entrepreneurial action that

makes an important distinction between third-

person opportunity (an opportunity for someone)

and first-person opportunity (an opportunity for

the actor) while explicitly recognizing that both

knowledge and motivation must be considered

concomitantly when examining entrepreneurial

action in each stage.

This article makes a number of contributions

identified by Whetten (1989) as important theo-

retical insights. First, we use epistemological

evidence from the philosophy and psychology of

action literature to demonstrate that the entre-

preneurship literature is characterized by one-

dimensional conceptualizations of uncertainty’s

preventive role in the entrepreneurial action

process. Second, we offer a conceptual model of

entrepreneurial action that demonstrates how

the addition of a new construct (in some cases

motivation and in others knowledge) signifi-

cantly alters our understanding of the role that

uncertainty plays in preventing entrepreneurial

action. Third, we use the proposed model to re-

interpret theories of the entrepreneur, thereby

enhancing these highly influential economic

models’ predictive validity of entrepreneurial

action at the individual level. Fourth, we use the

model to reveal points of empirical tractability

and philosophical impasse between entrepre-

neurship theorists employing different ontolog-

ical assumptions regarding opportunity. Fi-

nally, we offer a pragmatic and a conceptual

approach to the difficult task of reconciling con-

tentious philosophical perspectives.

The article proceeds as follows. First, we ex-

plore the notions of the entrepreneur and entre-

preneurial action that highlight the importance

of judgment under uncertainty, and then ac-

knowledge the role of belief and doubt in entre-

preneurial judgment using a discussion involv-

ing three types of uncertainty: state, effect, and

response. Second, we introduce a number of the-

ories of the entrepreneur and classify them in

2006 133McMullen and Shepherd

terms of two streams of research on uncertainty:

one stream emphasizes the role of perceived

uncertainty and the second gives prominence to

the willingness to bear uncertainty. Third, we

offer a conceptual model of entrepreneurial ac-

tion that reconciles aspects of the two streams of

research that have previously remained inde-

pendent of each other. We describe our concep-

tual model of entrepreneurial action as the out-

come of the willingness to bear perceived

uncertainty. Fourth, we use our proposed con-

ceptual model of entrepreneurial action to rein-

terpret three economic theories of the entrepre-

neur that are considered to be most influential

to the management literature. Finally, we can-

not avoid a discussion of the “thorny” issue of

ontology. In this section we discuss a number of

different perspectives about the existence of an

objective opportunity and propose two potential

approaches for reconciling apparently contrast-

ing views.

ENTREPRENEURIAL ACTION

AND UNCERTAINTY

Because we are interested in the entrepreneur

as an organizational or economic function that

is filled by an individual, rather than as a per-

sonality (i.e., innovative, risk seeking, etc.) or

position (i.e., small business manager, owner,

etc.), we seek definitional foundation in econom-

ics, where the entrepreneur traditionally has

been conceptualized in this manner (Casson,

1982: 22). After surveying economic theory de-

voted to entrepreneurship, Hebert and Link at-

tempt to synthesize several theoretical profiles

by defining the entrepreneur as “someone who

specializes in taking responsibility for and mak-

ing judgmental decisions that affect the loca-

tion, the form, and the use of goods, resources or

institutions” (1988: 155). They openly admit their

definition’s similarity to that proposed by Mark

Casson, who defines an entrepreneur as “some-

one who specializes in taking judgemental de-

cisions about the coordination of scarce re-

sources” (1982: 23). Interestingly, both of these

definitions are reminiscent of the first theory of

the entrepreneur put forth by Richard Cantillon

in 1755, in which he defined the entrepreneur as

“someone who engages in exchanges for profit;

specifically, he or she is someone who exercises

business judgment in the face of uncertainty”

(quoted in Hebert & Link, 1988: 21).

Each of these definitions suggests that the

entrepreneur is an individual who exercises

judgment, which Hastie defines as “the compo-

nents of the larger decision-making process that

are concerned with assessing, estimating, and

inferring what events will occur and what the

decision-maker’s evaluative reactions to those

outcomes will be” (2001: 657). “Decision making,”

he adds, “refers to the entire process of choosing

a course of action” (2001: 657). Finally, Hastie

suggests that uncertainty refers to “the decision-

maker’s judgments of the propensity for each of

the conditioning events to occur” (2001: 657).

Therefore, judgment is what must be exercised

to make a decision between alternative courses

of action that take place in an uncertain future.

Although many scholars have emphasized the

individual’s exercising of judgment under un-

certainty in the form of a decision (e.g., Cantil-

lon, Cole, Keynes, Marshall, Menger, Schultz,

Shackle, etc.), it is important to note that a deci-

sion is a necessary but insufficient condition for

the occurrence of entrepreneurship. We return to

the basic realization that entrepreneurship re-

quires one not just to decide but to decide to act.

Therefore, we subscribe to Hebert and Link’s

(1988) position that entrepreneurs respond to and

create change through their entrepreneurial ac-

tions, where entrepreneurial action refers to be-

havior in response to a judgmental decision un-

der uncertainty about a possible opportunity for

profit.

Whether entrepreneurial action occurs,

however, depends on how much one must rely

on one’s judgment, which, in turn, depends on

the degree of uncertainty experienced in the de-

cision of whether to act.

Alternative conceptualizations of uncertainty

exist within the management, economics, and

psychology literature. Particularly noteworthy is

Milliken’s (1987) exposure of conceptual incon-

sistencies of the term within the organizational

literature. As a result, he proposes three distinct

types of uncertainty (state, effect, and response)

that appear to be as applicable to the individual

This conceptualization of entrepreneurial action is pro-

cess oriented and transferable across a range of different

definitions of entrepreneurship within the management lit-

erature (e.g., Gartner, 1990; Shane & Venkataraman, 2000).

These scholars identify specific behaviors that are thought

to be especially “entrepreneurial” in nature, such as new

venture creation or Schumpeter’s (1934: 66) five forms of new

combinations.

134 JanuaryAcademy of Management Review

as they are to the organization as a unit of anal-

ysis. Milliken suggests that state uncertainty is

used to denote when administrators perceive

the environment to be unpredictable (1987: 136).

In contrast, effect uncertainty is defined as “an

inability to predict what the nature of the impact

of a future state of the environment or environ-

mental change will be to the organization” (1987:

137). Finally, Milliken suggests that response un-

certainty is “a lack of knowledge of response

options and/or an inability to predict the likely

consequences of a response choice (Conrath,

1967; Duncan, 1972; Taylor, 1984)” (1987: 137), and

he further points out that “response uncertainty

is likely to be salient when there is a perceived

need to act...because a pending event or

change is perceived to pose a threat or to pro-

vide some unique opportunity to the organiza-

tion” (1987: 137).

Milliken’s framework implies that uncertainty

in the context of action falls within the exclusive

domain of response uncertainty. However, this

perceived need to act frequently is stimulated

by state or effect uncertainty. This would sug-

gest that, in the context of action, Milliken’s

three types of uncertainty could be simplified

into three questions asked by a prospective ac-

tor about his or her relationship to the environ-

ment: (1) What’s happening out there? (state un-

certainty), (2) How will it impact me? (effect

uncertainty), and (3) What am I going to do about

it? (response uncertainty).

Questions like these require one to form a

belief, defined as a “conviction that certain

things are true” (Neufeldt & Sparks, 1995: 55).

However, this belief is often qualified by a re-

lated sense of doubt, which means “to be uncer-

tain or undecided; to tend to disbelieve”

(Neufeldt & Sparks, 1995: 180). This process, in

which a belief and a related sense of doubt are

formed, presupposes the existence of a world

that is malleable and somewhat susceptible to

beneficial actor influence. Therefore, it commu-

nicates a world view that is neither fully deter-

mined nor fully random (Moya, 1990; Shackle,

1966), and, as a consequence, “uncertainty” can

be viewed as a sense of “doubt” that is inextri-

cable from the beliefs that produce action.

Therefore, because we are interested in the

role that uncertainty plays in preventing people

from acting entrepreneurially, we embrace the

proposition made by Lipshitz and Strauss that

“uncertainty in the context of action is a sense of

doubt that blocks or delays action” (1997: 150).

This conceptualization captures three essential

features of uncertainty integral to our argument.

First, the proposition suggests that uncertainty

is subjective in that “different individuals may

experience different doubts in identical situa-

tions” (Lipshitz & Strauss, 1997: 150; see also

Duncan, 1972). Lipshitz and Strauss (1997) point

out that the conceptualization of uncertainty as

a subjective experience has a long tradition

within psychology (Duncan, 1972; Smithson,

1989). Entrepreneurship enthusiasts have con-

tributed to this tradition (1) by assuming that

uncertainty prevents action (Shane & Venkat-

araman, 2000; Stevenson & Jarillo, 1990) and (2)

by attributing variation in its action-obstructive

nature to individual differences in needs (Mc-

Clelland, 1961), values (Weber, 1930), attitudes

toward risk (Khilstrom & Laffont, 1979), confi-

dence (Cooper, Woo, & Dunkelberg, 1988), per-

ceptions (Palich & Bagby, 1995), and heuristics

(Busenitz & Barney, 1997).

The second and third features of Lipshitz and

Strauss’s uncertainty proposition are that it is

inclusive in that no particular form of doubt is

specified, such as ignorance of future outcomes

(Conrath, 1967; Smithson, 1989), and that it is

conceptualized in terms of the effect of uncer-

tainty on action—that is, hesitancy, indecisive-

ness, and procrastination (Dewey, 1933; Gold-

man, 1986; March, 1981; Yates & Stone, 1992).

These last two features serve to define uncer-

tainty more in terms of what it does than what it

is. This diminishes the importance of determin-

ing which of Milliken’s (1987) three forms of en-

vironmental uncertainty is technically being

discussed, because each prevents action by con-

tributing to doubt. Likewise, whether conceptu-

alized as risk (MacCrimmon & Wehrung, 1986),

Knightian uncertainty (Knight, 1921), ambiguity

(Hogarth, 1987; March & Olsen, 1976), turbulence

(Terreberry, 1968), or equivocality (Weick, 1979),

uncertainty in the context of action acts as a

sense of doubt that (1) produces hesitancy by

interrupting routine action (Dewey, 1933), (2) pro-

motes indecision by perpetuating continued

competition among alternatives (Goldman,

1986), and (3) encourages procrastination by

making prospective options less appealing

(Yates & Stone, 1992).

Entrepreneurship theorists have embraced

the position that uncertainty is detrimental to

entrepreneurial action because properties such

2006 135McMullen and Shepherd

as hesitancy, indecisiveness, and procrastina-

tion are thought to lead to missed opportunities

(Casson, 1982). The opportunity for action is of-

ten conceptualized as fleeting (James, 2002;

Shane & Venkataraman, 2000), owing to the com-

petitive nature of the market process (Mises,

1949; Schumpeter, 1942). This position is

grounded in an economic assumption that the

procrastination of one actor is typically offset by

the profit-seeking proactiveness of others

(Mann, 1996). Thus, economists often consider it

inevitable that someone in the marketplace will

act, which makes the decision process experi-

enced by any one individual seemingly incon-

sequential (Stigler, 1963).

Despite economists’ system-level, probabilis-

tic perspective of entrepreneurial action, how-

ever, we wish to point out that there is no market

independent of the actors who create it. There-

fore, ultimately, someone somewhere must

undergo a decision process in which action is

chosen if any market “process” is to occur. Over-

looking this fact has arguably contributed to the

generation of alternative theories of the entre-

preneur characterized by examination of only

one dimension of uncertainty’s effect on action.

ALTERNATIVE THEORIES OF

THE ENTREPRENEUR

Traditionally, the label theory of the entrepre-

neur has been used within the economics liter-

ature to denote the study of the relationship

between entrepreneurship and economic activ-

ity. These theories (e.g., Kirzner, 1973; Knight,

1921; Schumpeter, 1934) frequently attribute the

movement of the economy to a catalystic func-

tion fulfilled by the entrepreneur. Accordingly,

the entrepreneur is conceptualized in terms of

what he or she does—that is, innovates, coordi-

nates, etc. This behavior is then thought to in-

fluence the system by moving it toward, or away

from, some ideal state, such as equilibrium or

efficiency.

Two assumptions are characteristic of most

theories of the entrepreneur: (1) entrepreneur-

ship is a “good” thing, with beneficial outcomes

that accrue to the system in which it occurs

(Kilby, 1971; Stevenson & Jarillo, 1990),

and (2)

entrepreneurship is observable as a behavior

that can be attributed to some definitive theo-

retical attribute capable of differentiating entre-

preneur (actor) from nonentrepreneur (nonactor).

Although the first assumption is important for

understanding why scholars have devoted so

much energy to the subject and why the study of

entrepreneurial behavior at the individual level

is of value to organizational studies, it is not the

focal point of this article. The second assump-

tion, however, is highly significant to our argu-

ment in that it helps to expose the manner in

which uncertainty is conceptualized within

these theories.

We suggest that many theoretical explana-

tions of why prospective entrepreneurs choose

to pursue a possible opportunity can be classi-

fied into two simple conceptualizations of the

role that uncertainty plays in preventing action:

(1) the amount of uncertainty perceived and (2)

the willingness to bear uncertainty. We turn

now to a deeper examination of each.

Entrepreneurial Action As the Outcome of

Less Perceived Uncertainty

While neoclassical economists were abolish-

ing the need to consider individual differences

by constructing theories with assumptions such

as perfect information, “Austrian” economists

were building their economic theories on such

premises as the subjectivity of value (Menger,

1950), imperfect knowledge (Hayek, 1945), asym-

metric beliefs (Mises, 1949), and differences in

entrepreneurial alertness (Kirzner, 1973, 1985).

Austrian economists typically have considered

the entrepreneur to be the engine of the econ-

omy (Kirzner, 1989; Mises, 1949; Pasour, 1989) and

have attributed the stagnation of the economy to

a lack of entrepreneurial action. This lack of

entrepreneurial action, they believe, is often the

consequence of unperceived opportunities (Kirz-

ner, 1979), which arise from the various explana-

tions mentioned above.

Although Austrians are labeled subjectivists,

this subjectivism traditionally has referred to

the epistemological limitations suffered, to a

greater or lesser extent, by the subjects of their

Baumol (1996) questions this assumption by suggesting

that entrepreneurs pursue profit. If this profit is achieved via

innovation, then the system benefits as a by-product. How-

ever, if innovation is difficult or unnecessary for profit, then

entrepreneurial energy is likely to take unproductive or even

destructive forms.

136 JanuaryAcademy of Management Review

theories. Thus, people who have acted entrepre-

neurially are seen to possess a more accurate

picture of reality than those individuals who

have not acted. Moreover, an objective reality is

thought to exist in which a market opportunity is

there for the taking, but only for those who pos-

sess the qualities necessary both to discover

and exploit it (see Addleson, 1995, for an elo-

quent articulation of this point). Thus, entrepre-

neurial action is seen as something all would

engage in if they knew what to do, but, owing to

epistemological differences, only some people

(the entrepreneurs) “know” what to do. Accord-

ingly, entrepreneurs are thought to have taken

action because they somehow escaped the igno-

rance and paralysis produced by uncertainty,

whereas those who have not acted entrepre-

neurially are believed either to have fallen vic-

tim to doubt or to have been blinded to the need

for forming a belief at all.

Graphically, this can be depicted as in Figure

1. This figure shows two hypothetical internal

response curves centered around two means.

The left mean represents the noisy status quo,

and the right mean represents third-person op-

portunity, which we define as a potential oppor-

tunity for someone in the marketplace. Thus,

third-person opportunity may not reflect an op-

portunity for everyone, but, for those individuals

with the right qualities, market potential exists.

The distance between the means signifies the

ability to discern the market potential of this

third-person opportunity. For example, one

would expect the market potential of a tele-

porter to be more easily discerned than, say, the

market potential of the internet prior to web

browsers.

The distance between the means and the dis-

tribution of the curves contribute to the amount

of uncertainty perceived in the decision to act.

Although the Austrian presumption of an objec-

tive reality suggests that the distance between

the means is the same for any prospective actor,

the distribution of the curves surrounding these

means frequently is discussed as a function of a

theoretically determined individual difference.

For example, according to Hayek’s (1945) argu-

ment, considerable overlap between the two

curves would represent an individual with little

“local” knowledge of time and place, whereas

little overlap would reflect an individual with a

knowledge base that is highly applicable to the

recognition and exploitation of this particular

third-person opportunity. Thus, the discriminat-

ing feature between these two individuals is the

possession of applicable knowledge. This

knowledge reduces perceived uncertainty to a

point that not only enables prospective entre-

preneurs to form a belief that they have recog-

The curves centered around the two means are repre-

sentative of hypothetical responses to the question of

whether the individual believes that a third-person oppor-

tunity exists. If the answer is no, then the decision would

reflect a point on the left curve, whereas if the answer is yes,

then the decision would reflect a point on the right curve.

Under a repeated decision scenario, such as those con-

ducted in experimental settings, this process would produce

a response curve around each mean composed of points

representing actual decisions. However, we qualify the

curves as “hypothetical” because, in a natural context, only

one point of an individual’s response curve is observable.

FIGURE 1

Hypothetical Internal Response Curves Regarding Third-Person Opportunity

2006 137McMullen and Shepherd

nized a third-person opportunity but also allows

them to overcome the belief-related doubt that

would otherwise prevent action.

Therefore, according to many theories of en-

trepreneurial action, uncertainty has been con-

ceptualized in terms of quantity. Owing to the

distance between the means and the distribu-

tion around the means, the prospective entrepre-

neur is thought to face more or less uncertainty,

which prevents action either by obfuscating the

existence of the third-person opportunity or by

contributing to the doubt people experience in

their belief that a third-person opportunity ex-

ists. Thus, the uncertainty perceived by a pro-

spective actor forms a continuum, with complete

ignorance on one end (denoted graphically as

flat response curves) to near certainty on the

other end (denoted graphically as response

curves that nearly form a perfectly straight per-

pendicular line at the mean, with no overlap

between these narrow curves). Although the role

that perceived uncertainty plays in obstructing

entrepreneurial action is important, we argue

that it is insufficiently explanatory, because it

says nothing about the willingness to bear the

uncertainty that is perceived.

Entrepreneurial Action As the Outcome of

More Willingness to Bear Uncertainty

The theory of the entrepreneur is not the ex-

clusive domain of the Austrian economist. Prom-

inent non-Austrians, from Knight (1921) to

Schumpeter (1934), also have recognized the role

that uncertainty plays in preventing entrepre-

neurial action. However, these economic theo-

rists conceptualize uncertainty’s action prohibi-

tive role in a slightly different way. They see

entrepreneurial action not as the outcome of

less perceived uncertainty but as more willing-

ness to bear the uncertainty faced by all pro-

spective actors. For instance, Knight addresses

uncertainty explicitly. He posits that profit is the

reward for those willing to bear uncertainty be-

cause, unlike risk, uncertainty is inestimable

and therefore uninsurable. Thus, entrepreneurs

are distinguishable from nonentrepreneurs in

their willingness to bear the uncertainty intrin-

sic to a possibly profitable course of action.

In contrast, the willingness to bear uncer-

tainty is implicit in Schumpeter’s theory, where

he argues that the entrepreneur’s function lies

in the innovative act of creating new combina-

tions. Believing that the potential for new com-

binations is abundant and at times obvious,

Schumpeter delineates entrepreneurs from non-

entrepreneurs not by differences in knowledge

or perception but by the performance of the in-

novative act itself (1934: 88). This elimination of

perceptual differences forces Schumpeter to

speculate reluctantly about motivational differ-

ences in an attempt to explain why some indi-

viduals and not others engage in entrepreneur-

ial action (1934: 90).

Schumpeter’s (1934) behavioral bent attracted

psychologists, such as McClelland (1961), Hagen

(1962), and Kunkel (1965), who exchanged the

economic theorists’ descriptive orientation for a

more prescriptive theoretical viewpoint. Where-

as economic theories of the entrepreneur fo-

cused on explaining what must occur (e.g., un-

certainty bearing) for the economy to function,

psychological theories sought to explain why

entrepreneurs are more willing than their coun-

terparts to bear this uncertainty. Because these

psychologists shared the economists’ belief that

entrepreneurship produced economic growth,

they tried to identify the motives underlying en-

trepreneurial activity in an effort to develop

these motives in their subjects. Unfortunately,

this was thought to produce explanations that

relied too heavily on unchangeable needs and

values developed in childhood.

Graphically, this can be depicted as in Figure

2. Figure 2 builds on the graph shown in Figure

1. However, in this case, the distance between

the means and the distribution of the curves

remain constant. The vertical line in Figure 2

indicates the criterion, used to designate the

point at which the prospective entrepreneur is

willing to act. It is at this point that the prospec-

tive entrepreneur decides that a possible third-

person opportunity is an opportunity for him or

her—that is, a first-person opportunity. The cri-

terion, therefore, conveys the individual’s will-

ingness to bear the uncertainty intrinsic to en-

trepreneurial action.

A criterion that splits the uncertainty (denoted

by the area of the overlapping response curves)

It should be noted that, unlike critics, these theorists did

not see these motives as unchangeable elements of person-

ality. For instance, much of McClelland’s empirical work

was devoted to establishing that the need for achievement

could be learned. We wish to thank Jerry Katz for this in-

sightful observation.

138 JanuaryAcademy of Management Review

in half means that a prospective actor will be as

likely to act as not. In contrast, if an individual

chooses a lax criterion (denoted by moving the

criterion to the left), he or she will pursue almost

every possibility that comes along. Such a loca-

tion of the criterion is representative of the pro-

file of the Schumpeterian entrepreneur who is

frequently conceptualized as an innovator,

leader, and/or adventurer. It is also reflective of

the Knightian entrepreneur who is explicitly

conceptualized as a “bearer of uncertainty.” Psy-

chologists like McClelland sought to explain the

“laxity” of the criterion (e.g., as the need for

achievement) and promote it in an effort to en-

courage entrepreneurial activity.

If the individual chooses a strict criterion (de-

noted by moving the criterion to the right), he or

she will choose to pursue very few possibilities.

Given the uncertainty surrounding the decision,

there is always overlap between the noise and

third-person opportunity curves. Thus, individu-

als are forced to expose themselves to the pos-

sibility of either committing an error of commis-

sion (taking action only to find their belief was

unfounded) or committing an error of omission

(not taking action only to regret it when time

proves that their passed-over hunch was cor-

rect). Although only time proves prophecy, con-

sideration of the possible payoffs associated

with these various decisional outcomes shapes

prospective actors’ decisions as they contem-

plate whether to commit to a particular course of

action.

A simple amalgamation of the above argu-

ments suggests that uncertainty prevents action

by obfuscating (1) the need or possibility for

action, (2) the knowledge of what to do,

and (3)

whether the potential reward of action is worth

the potential cost. In the next section we present

a conceptual model (illustrated in Figure 3) that

relates perceived uncertainty and motivation to

entrepreneurial action.

A PROPOSED SYNTHESIS: ENTREPRENEURIAL

ACTION AS THE OUTCOME OF THE

WILLINGNESS TO BEAR PERCEIVED

UNCERTAINTY

Environmental change is usually thought to

be a source of business opportunities. For exam-

ple, Shane (2000) investigated a technological

change in printing (a patented three-dimen-

sional printing process) and eight teams of en-

trepreneurs, each of whom pursued a different

opportunity arising from the technology. Simi-

larly, we use technological change as a starting

point to summarize our conceptualization of the

two stages of entrepreneurial action.

Stage I: Attention and Third-Person

Opportunity

Stage I addresses first-person attention. Either

people acknowledge a third-person opportunity

arising from a technological change or they do

not. Of course, those individuals who are un-

aware of the technological change are likely to

We use “what to do” inclusively. That is, “what to do”

does not refer merely to the “end” but also to the “means” of

“how,” “when,” and “where” that end is to be achieved.

FIGURE 2

The Criterion As the Individual’s Willingness to Bear Uncertainty Intrinsic

to Entrepreneurial Action

2006 139McMullen and Shepherd

fall into the latter category. For example, with-

out a certain degree of domain-specific knowl-

edge, one may not even recognize the possibility

for action (by oneself or others). In other words,

there may be so much uncertainty that the indi-

vidual is too ignorant to ask, “What’s happening

out there?” Thus, whether individuals perceive

Milliken’s state and effect uncertainty depends

on whether they know enough about a techno-

logical change to perceive it, even if only faintly.

This suggests that a general form of domain-

specific knowledge is necessary to trigger the

experiencing of response uncertainty.

However, knowledge need not predicate moti-

vation in this process. Before the criterion be-

comes attached to the evaluation of a particular

third-person opportunity, its location depends

on an individual’s strategy. “A strategy refers to

a pattern of decisions in the acquisition, reten-

tion, and utilization of information that serves to

meet certain objectives, i.e., to insure certain

forms of outcome and to insure against certain

others” (Bruner, Goodnow, & Austin, 1956: 54).

Thus, the position of the criterion prior to the

existence of a stimulus represents the individu-

al’s strategy.

For example, when a person becomes dissat-

isfied with his or her current athletic shoes, the

individual may begin to consider switching

brands when buying a new pair. As a conse-

quence, the individual will likely become more

sensitive to what others are wearing than before

and will increasingly allocate attention to the

issue. This relaxes the criterion, making the in-

dividual more sensitive to his or her environ-

ment. This can produce deliberate search, such

as exploring various stores in the hopes of find-

ing the qualities the person is looking for in an

athletic shoe (e.g., improved performance and

comfort, through reduction of the accumulation

of sweat in the shoe), or it can take form as a

discovery heuristic (Gigerenzer, 1991), such as a

sudden increase in awareness of ventilation

technology used in other products (e.g., bellows,

fans, suction devices) that one (and others) had

previously ignored. Either way, the desire for a

new, improved athletic shoe has spurred the

acquisition of knowledge likely to prompt the

recognition of recent technological advances in

fan miniaturization (for use in computers) and

the determination that to insert miniaturized

fans in athletic shoes represents a third-person

opportunity, one that reduces the temperature of

the foot and thus reduces sweating, odor, and

such fungal infections as athlete’s foot. Once

that opportunity is noticed, however, the crite-

rion becomes attached to the specific action nec-

FIGURE 3

A Conceptual Model Relating Perceived Uncertainty and Motivation to Entrepreneurial Action

140 JanuaryAcademy of Management Review

essary to assess whether third-person opportu-

nity represents first-person opportunity.

Therefore, the acknowledgment of a third-

person opportunity arising from a technological

change is configural in the sense that people

who have the necessary knowledge and motiva-

tion will believe that there is third-person oppor-

tunity arising from a technological change, but

those who do not have the necessary knowledge

and motivation will not believe that the techno-

logical change represents an opportunity for

someone and will no longer attend to it. Stage II

applies only to those individuals who believe

that a third-person opportunity exists.

Stage II: Evaluation and First-Person

Opportunity

Stage II addresses first-person evaluation.

The belief that a technological change repre-

sents a third-person opportunity triggers a deci-

sion-making process in which the prospective

entrepreneur must evaluate whether this third-

person opportunity constitutes a first-person op-

portunity. The individual forms beliefs regard-

ing what to do and why to do it—that is, whether

the potential reward for this particular action is

worth the potential cost specific to oneself. How-

ever, both of these beliefs are undermined to a

greater or lesser extent by doubt. Therefore, re-

gardless of whether the construct of knowledge

or motivation is discussed, the process remains

the same: a belief is formed regarding a desired

end state, but doubt exists regarding whether

that desired end state is feasible (can be

achieved in the manner envisioned) and desir-

able (whether its attainment will fulfill the mo-

tive for which it is being sought).

This evaluation stage is rooted in Aristotle’s

“practical syllogism,” which forms the founda-

tion of most expectancy-value theories (e.g.,

Ajzen, 1996a,b; Gatewood, Shaver, Powers, &

Gartner, 2002). According to Aristotle (1987), the

premises of this syllogism are the actor’s desires

(“Awants to achieve X”) and beliefs (“Abelieves

that if Bis performed Xwill occur”), and the

conclusion is not another belief but the action

itself. Thus, the realization that individual ac-

tion is not solely a function of knowledge or

motivation but, rather, a composite of belief and

desire regarding a particular form of behavior is

not new, nor is it limited to expectancy-value

theory (Greve, 2001). In fact, Hastie suggests that

the field of judgment and decision making is

about “how people...combine desires (utilities,

personal values, goals, ends, etc.) and beliefs

(expectations, knowledge, means, etc.) to choose

a course of action” (2001: 655– 656). He goes on to

point out that the conceptual and perhaps defin-

ing template for a decision comprises three com-

ponents:

(a) courses of action (choice, options, and alterna-

tives); (b) beliefs about objective states, pro-

cesses, and events in the world (including out-

come states and means to achieve them); and (c)

desires, values, or utilities that describe the con-

sequences associated with the outcomes of each

action-event combination (2001: 656).

Believing that one has recognized a third-

person opportunity does not necessarily mean

one believes one possesses the knowledge and

motivation necessary to exploit it. However,

through learning efforts and/or the encourage-

ment of others, one may be able to overcome

doubt and act. Therefore, the question of the

second stage is similar to a classic “risk/return”

dilemma in which a prospective actor must ask

him/herself whether he or she believes that the

payoff of the third-person opportunity justifies

bearing the perceived uncertainty necessary to

attain it. If the answer is yes, then a first-person

opportunity is believed to exist, and entrepre-

neurial action takes place. The “risk” of this

risk/return dilemma, however, is subjectively

determined by the prospective actor. Thus, it

seems that, to act entrepreneurially, people

need not have a high tolerance for uncertainty if

they believe that they know what they are doing.

Therefore, whether one will engage in a par-

ticular action is a decision that depends on

whether the individual is motivated enough to

act, given the uncertainty he or she expects to

encounter in pursuit of a third-person opportu-

nity. The next section applies our model to a

number of influential economic theories of the

entrepreneur (conveyed in Table 1) not only as a

means of revealing problems that management

scholars face when trying to apply these theo-

ries of the entrepreneur to the individual rather

than system level, but also as a means of glean-

See Barnard (1968) for an analogous argument in which

the terms effectiveness and efficiency are used, respectively,

to delineate goal attainment from motive satisfaction.

2006 141McMullen and Shepherd

ing theoretical insights that are not ontologi-

cally constrained.

REINTERPRETATION OF INFLUENTIAL

THEORIES OF THE ENTREPRENEUR

Failure to address entrepreneurial action in

terms of both knowledge and motivation has

produced a number of theories of the entrepre-

neur that are incomplete when used at the indi-

vidual level of analysis. In this section we use

our conceptual model of entrepreneurial action

to address possible limitations of the three the-

ories of the entrepreneur that are considered

most influential in the management literature:

Schumpeter (1934), Kirzner (1973), and Knight

(1921).

Schumpeter’s Innovator: Epistemological and

Ontological Issues

Schumpeter’s theory introduces two major as-

sumptions. The first is that perceived uncer-

tainty does not play a role in entrepreneurial

action. This assumption is derived from a belief

that opportunity is abundant and readily iden-

tifiable. For example, Schumpeter discusses the

economy as if it were a relatively closed system

that merely interfaces with science, literature,

politics, and so forth via the entrepreneur.

doing so, Schumpeter suggests that opportuni-

ties originate elsewhere for all prospective en-

trepreneurs to see. Because all of the prospec-

tive entrepreneurs are equally capable of

seeing the development, it is only the adventur-

ous who make the leap—that is, entrepreneurs

can be discriminated from others only in terms

of the location of their criterion. Schumpeter is

then forced to speculate about individual differ-

ences in the motivation to act entrepreneurially,

and he identifies a number of “traits,” including

greater self-centeredness (1934: 91–92), “the

dream and the will to found a private kingdom”

We have chosen to emphasize these three theorists over

others for the following reasons. First, as Stevenson and Jarillo

(1990) point out, Schumpeter’s conceptualization of the entre-

preneur has provided one of the primary theoretical founda-

tions on which entrepreneurial management research has

been built. Second, Kirzner’s conceptualization of the entrepre-

neur is the most influential in the opportunity paradigm pro-

posed by Shane and Venkataraman (2000) in their recent but

already highly influential piece. Finally, Knight was chosen to

round off our examples because his theory is typically recog-

nized as the third primary and distinctly original theory of the

entrepreneur (Barreto, 1989; Hebert & Link, 1988).

For example, Schumpeter notes:

It is no part of [the entrepreneur’s] function to “find” or

to “create” new possibilities. These are always

present, abundantly accumulated by all sorts of peo-

ple. Often they are also generally known and being

discussed by scientific or literary writers. In other

cases, there is nothing to discover about them, be-

cause they are quite obvious. To take an example from

political life, it was not at all difficult to see how the

social and political conditions of France at the time of

Louis XVI could have been improved so as to avoid a

breakdown of the ancient regime. Plenty of people as

a matter of fact did see it. But nobody was in a position

to do it. Now, it is this “doing the thing,” without which

possibilities are dead, of which the [entrepreneur’s]

function consists (1934: 88).

TABLE 1

Limitations and Assumptions of Three Influential Theories of the Entrepreneur

Theorist

Knowledge:

Perceived

Uncertainty

Motivation:

Willingness to

Bear Uncertainty

Philosophical

Stance Importance of Configural Argument

Schumpeter Relatively ignored Addressed—primarily

in terms of the

evaluation

stage

Naive realism Moderate—third-person opportunity

is considered to be readily

identifiable

Kirzner Addressed—primarily

in terms of the

attention stage

Relatively ignored Critical realism High—third-person opportunity is

thought to be obscured by market

ignorance

Knight Addressed—primarily

in terms of the

evaluation

stage

Addressed—primarily

in terms of the

evaluation

stage

Critical realism Low—awareness of third-person

opportunity is taken for granted

142 JanuaryAcademy of Management Review

(1934: 93), “the will to conquer” (1934: 93), and the

“joy of creating” (1934: 93–94).

Schumpeter’s second major assumption is

that opportunities have an objective existence—

an argument that communicates a social realist

ontology. Ontological assumptions are assump-

tions concerning the nature of social reality. “[A]

social realist ontology presumes that actors are

real—natural persons having innate capacities

to act so as to secure and protect their interests.

. . . The environment too is regarded as real: it is

out there as a part of the natural world” (Scott,

1995: 50). In contrast, a social constructionist on-

tology suggests that “individuals do not dis-

cover the world and its ways, but collectively

invent them. Such invention is not random and

arbitrary, but itself arises out of and is informed

and constrained by existing social arrange-

ments and beliefs” (Scott, 1995: 50). Because

Schumpeter’s theory conceptualizes possibili-

ties as existing objectively (i.e., in the form of

new technologies observable by all), it not only

recognizes the existence of a third-person oppor-

tunity but it also equates this third-person op-

portunity with first-person opportunity in every

way except one: the amount of desire people

exhibit in deciding whether to exploit it.

Subscription to this social realist ontology, in

combination with the elimination of epistemo-

logical differences, puts Schumpeter into a bit of

a straitjacket. Because everyone in his economy

shares the same perceptual acumen, opportuni-

ties must be new to everyone, not merely the

actor, or else they would already have been

exploited. This limits Schumpeter’s “true” entre-

preneur to the domain of radical innovation.

However, the radicalness of the innovation and

even the innovation itself become third-party

assessments subject to post hoc analysis. That

is, the degree of innovativeness exhibited is

more dependent on a subjective evaluation

made by a number of observers after the fact

than it is on some objectively definable criteria.

Consequently, a priori classification of “radical

innovation” is exceptionally difficult and empir-

ically problematic.

One potential explanation for this difficulty is

that action is an individual phenomenon affect-

ing system-level outcomes. Traditionally, theo-

retical focus has started with the system-level

outcome (i.e. radical innovation), and the theo-

rist then looked to the actor(s) to determine the

cause. This approach unwittingly imposes the

ontological assumptions common to economic,

system-level theories on to the process experi-

enced by the individual actor (i.e., entrepreneur).

Unlike these system-level theories, which rely

on an observer’s assessment of whether an actor

is engaging in radical innovation or bearing

uncertainty, a theory of individual action fre-

quently defines novelty through the eyes of the

actor (see Weber 1947, 1968) and argues that it is

this actor’s assessment of the situation that ul-

timately determines whether entrepreneurial

action will occur. Thus, the individual action

that impacts the system depends on whether an

activity is radical, uncertain, novel, and so forth

in the mind of the prospective actor. If this action

occurs on a scientific knowledge frontier, then it

will likely appear radical to observers, but if this

action occurs on a personal knowledge frontier

(e.g., franchising), then it may appear to observ-

ers to be nothing more than imitation. To the

particular actor, however, it may be novel either

way. An embrace of this first-person approach is

characteristic of the Austrian school and of Kirz-

ner’s theory, to which we now turn our attention.

Kirzner’s Alert Arbitrageur: Motivational and

Configural Issues

Whereas Schumpeter’s entrepreneur disrupts

equilibrium by introducing radical innovation,

Kirzner’s entrepreneur begins in disequilibrium

and fulfills the function of an arbitrageur who

moves the economy toward equilibrium by rec-

tifying discrepancies in supply and demand.

Unlike Schumpeter, Kirzner (1973) provides am-

ple attention to epistemological differences un-

der the guise of entrepreneurial alertness. How-

ever, within Kirzner’s (1979) work, there is an

We use the adjective true because although Schumpeter

often used the term entrepreneur to refer to both the pioneer

and the subsequent entrants, he considered the pioneer, or

“leader,” to represent the “true” theoretical entrepreneur

responsible for stimulating the system. To avoid the confu-

sion associated with introducing a new term, we thought it

best to designate this theoretical profile as the “true” entre-

preneur rather than the “leader.”

These discrepancies in supply and demand are not

limited to existing products and services. They also include

future discrepancies that can arise from discoveries of su-

perior means-end frameworks of which people were previ-

ously unaware.

2006 143McMullen and Shepherd

unwitting dilution of his concept of entrepre-

neurial alertness from a description of a behav-

ior that is necessary for the economy to function

properly

to a description of a psychological

characteristic common to successful entrepre-

neurs.

We say “unwitting” because Kirzner fre-

quently acknowledges the importance of a

statement made by his mentor, Ludwig von

Mises: “The economist must never be a special-

ist. In dealing with any problem he must fix his

glance upon the whole system” (Mises, 1949: 69).

As a behavior that is necessary for the econ-

omy to function properly, entrepreneurial alert-

ness is what happens when the market presents

a profitable situation that is successfully ex-

ploited by an individual who “fits” the neces-

sary profile (Kirzner, 1973, 1980). In essence, en-

trepreneurial alertness is a less mathematical

exposition of probability theory in which the

market presents an objective opportunity for

someone possessing the necessary knowledge.

Entrepreneurial alertness ensures exploitation

of this opportunity and consequently perpetu-

ates the market system.

To use an analogy, entrepreneurial alertness

is like a radio trivia contest. Although you or I

may not know the answer to the trivia question

asked by the disc jockey, someone inevitably

does. Therefore, an objective opportunity can be

said to exist. The first individual who knows the

answer and calls in to claim the prize is the

exhibitor of Kirzner’s (1973) concept of entrepre-

neurial alertness. Accordingly, entrepreneurial

alertness has no meaning a priori. By definition,

it can only be said to exist post hoc. Therefore,

alertness can only be said to exist for the suc-

cessful radio caller (and possibly to a lesser

degree for those who know the answer, try to

call, but are not as fast as the winner). The caller

who gets through but provides the wrong an-

swer cannot be described as exercising entre-

preneurial alertness. Thus, entrepreneurial

alertness is a configural concept in which an

objective market opportunity is only an opportu-

nity for those possessing the necessary at-

tributes. Therefore, because this alertness is a

product of the market, it is problematic for it to

be discussed as a universal attribute of entre-

preneurial individuals independent of the sys-

tem in which they operate.

However, entrepreneurial alertness is used as

a description of a psychological characteristic

common to successful entrepreneurs in Kirzner’s

later works (1982, 1997, 1999; Kirzner & Institute of

Economic Affairs, 1997) as an effort to soften

(1982: 156 –157) the more deterministic stances

taken in his earlier work (e.g., 1979: 9). In doing

so, he obfuscates the configural nature of the

“alertness” concept by discussing it more in

terms of a quality observable in characteristics

such as prescience, boldness, self-confidence,

creativity, and innovative ability (Kirzner, 1999).

This transforms entrepreneurial alertness into

nothing more than judgment and leads the

reader to believe that the concept is separable

from the market context. However, we argue that

it is not. This judgment is still discussed in terms

of how well the entrepreneur’s envisaged future

corresponds to the realized future (Kirzner, 1982:

156).

The problem that this introduces lies in the

fact that Kirzner equates opportunity recogni-

tion with entrepreneurial action (e.g., “entrepre-

neurial alertness exploits these opportunities

when others pass them by”—see footnote 11). In

a subsequent article in which he compares and

contrasts his entrepreneur with Schumpeter’s,

Kirzner (1999) comes closer to recognizing the

need for a criterion. However, he still tries to

address motivation in terms of perception (i.e.,

the proposed solution is still the need for a

For example, Kirzner notes:

This entrepreneurial alertness is crucial to the mar-

ket process. Disequilibrium represents a situation

of widespread market ignorance. This ignorance is

responsible for the emergence of profitable oppor-

tunities. Entrepreneurial alertness exploits these

opportunities when others pass them by. G.L.S.

Shackle and Lachman emphasized the unpredict-

ability of human knowledge, and, indeed, we do not

clearly understand how entrepreneurs get their

flashes of superior foresight. We cannot explain

how some men discover what is around the corner

before others do....As an empirical matter, how-

ever, opportunities do tend to be perceived and

exploited. And it is on this observed tendency that

our belief in a determinate market process is

founded (1979: 9).

For example, within the same book providing the pre-

vious comment, Kirzner states:

The truth is that the ability to learn without delib-

erate search is a gift individuals enjoy in quite

different degrees. It is this gift surely, that we have

in mind when we talk of entrepreneurial alertness.

Entrepreneurial alertness consists, after all, in the

ability to notice without search opportunities that

have been hitherto overlooked (1979: 148).

144 JanuaryAcademy of Management Review

tighter distribution around the mean of the

third-person opportunity). Kirzner explicates:

The seer who can imagine how the world might

be improved by a radical innovation but who

lacks the needed boldness and initiative (to

shoulder the risks which he would have to as-

sume in order actually to introduce this innova-

tion to reality in a world fraught with uncertain-

ties)— has in fact not yet really discovered an

available, attractive opportunity for innovation. If

he has not seen that opportunity in so shining a

light that it drives him to its implementation in

spite of the jeering skepticism of others, and in

spite of the possibility of its ultimate failure—

then he has not really “seen” that opportunity

(1999 13).

In essence, Kirzner’s argumentation collapses

the attention and the evaluation stages of our

conceptual model of entrepreneurial action into

one simultaneous occurrence in which individ-

uals become entrepreneurs if and only if their

prior knowledge enables them to go from igno-

rance to near certainty instantaneously. That is,

an individual becomes an entrepreneur when

his or her distribution around the third-person

opportunity mean is so tight that uncertainty is,

for all material purposes, eliminated from the

question of whether to act (as was the case in

the aforementioned radio contest analogy). The

primary problem with this conception lies in the

realization that you or I may frequently know the

answer to a radio trivia question without believ-

ing that the prize is motivating enough to waste

time on the unlikely prospect of getting through

to the station. Therefore, without motivation, en-

trepreneurial alertness cannot be expected to

produce entrepreneurial action, regardless of

how “clearly” one may have “seen” an opportu-

nity.

For the most part, Kirzner’s theory of entrepre-

neurial alertness is an elegant explanation of

the attention stage. Ignorance is addressed in

terms of perception, and the ability to notice

opportunities without search is highly reminis-

cent of personal strategy. However, to be a the-

ory of the entrepreneur, both the attention and

the evaluation stages are necessary. After all,

entrepreneurial perception can only be consid-

ered “entrepreneurial” when it produces action.

This cannot be achieved without evaluating

action-specific uncertainty (even if only briefly,

owing to a potentially nominal amount of uncer-

tainty). This evaluation, in turn, involves the

necessary motivation in relation to one’s belief

and corresponding doubt that one knows what

to do. Therefore, according to Kirzner, being an

entrepreneur logically implies that entrepre-

neurial alertness has been exercised. Without

entrepreneurial alertness, the individual would

not have perceived and acted on the opportu-

nity, and would not, therefore, be an entrepre-

neur.

Knight’s Uncertainty Bearer: Attention Issues

Because it emphasizes uncertainty in the ex-

planation of profit, Knight’s (1921) theory comes

the closest of the three in recognizing the signif-

icance of both knowledge and motivation in en-

trepreneurial action. However, because the con-

text of the theory is an existing firm, the

existence of a decision scenario is frequently

taken for granted, and little explanation is given

to how the decision maker escapes ignorance.

Knight argues that individuals frequently face

uncertainty in the decisions they make regard-

ing the normal functioning of the enterprise—

that is, forecasting consumer demand, project-

ing costs, and so on. Thus, recognizing or

creating opportunities is made insignificant, be-

cause profit is believed to come from uncer-

tainty, which Knight considers to be rarely in

short supply. Instead, he places emphasis on the

responsibility associated with decision making.

Accordingly, Knight’s theory discusses entre-

preneurial action solely in terms of the evalua-

tion stage, without adequate concern for the at-

tention stage. In other words, there is no need to

address the kind of radical uncertainty (i.e., flat

response curves) indicative of market ignorance

if one begins with the assumption that the stim-

ulus will be thrust on the individual in the nor-

mal course of business activities. This position

makes Knight’s theory congenial to discussions

of scanning and deliberate search common to

strategy research (Dutton & Jackson, 1987, 1997)

but incomplete when addressing discussions of

discovery, which are more commonly associated

with entrepreneurship. Because scanning and

deliberate search are prompted by a conscious

awareness of a need for more information, they

address uncertainty and known ignorance (i.e.,

“I know what it is that I don’t know”). Discovery,

however, is based on notions of complete igno-

rance (i.e., “I don’t know what it is that I don’t

know”). That is, the individual is not consciously

investigating the phenomenon and may even be

2006 145McMullen and Shepherd

involved in alternative activities that engage

his or her attention, thereby preventing recogni-

tion of a third-person opportunity.

Although in some respects Knight’s theory of-

fers a less comprehensive explanation of why

the economy functions effectively and why firms

emerge than either Schumpeter’s or Kirzner’s, in

other ways Knight may have an advantage over

Schumpeter and Kirzner. By not discussing the

economy explicitly, Knight is able to focus more

clearly on the individual’s decision-making pro-

cess. This focus on the individual and relative

neglect of the system may be responsible not

only for preventing oversight of either knowl-

edge or motivation but also for keeping Knight

from becoming too enslaved by his ontological

assumptions. Although Knight clearly exhibits

social realist sympathies when he suggests that

“a man’s judgment has, in an effective sense, a

true or objective value” (1921: 270 –271 footnote),

his theory is not constrained by them, as is the

case with Schumpeter and Kirzner, each of

whom focuses substantially on the concept of

equilibrium and disequilibrium.

As a result, Knight’s theory is less configural

in nature. In fact, the third-person opportunity

could be conceptualized in terms of a socially

constructed situation in the future about which

the entrepreneur must try to accurately predict

what will take place. For example, the question

is not whether this is or is not an objective op-

portunity to seize; rather, it is “How firmly do I

believe that I can sell a certain number of my

new product to the market?” In such a scenario,

the expectation becomes the third-person oppor-

tunity and the actor’s knowledge and motivation

contribute to whether the actor deems the sce-

nario action worthy (i.e., “Can I make the future

what I want it to be?”). This kind of scenario

generation and enactment escapes the heavy

determinism implied by the equilibrium para-

digm and begins to look a lot like the psycho-

logical stances taken by radical, subjectivist

economists (e.g., Ebeling, 1986; Maki, 2001;

Shackle, 1972) and critical psychologists, such

as Weick (1979, 1995). This change in argumen-

tation, however, results in a shift in one’s onto-

logical assumptions.

Schumpeter and Kirzner embrace social real-

ism. In both theories discovery plays a role. Be-

cause Kirzner begins with a dynamic and inclu-

sive economy, he must address discovery

directly, which he does through his concept of

market ignorance. Schumpeter also addresses

discovery, but more indirectly. He simply pushes

it back into the realm of science, making the

scientists the inventors and the entrepreneurs

merely innovators. However, the fact remains

that “discovery” still occurs somewhere in his

world view.

In contrast, action theorists of a sociological

(DiMaggio & Powell, 1983; Meyer & Rowan, 1977)

and critical psychological bent (Burke & Reitzes,

1991; Weick, 1993) favor a social constructionist

orientation (Scott, 1995), shying away from terms

such as discovery when discussing social con-

texts (Scott, 1995). These theorists do not see the

social environment as something to be discov-

ered; instead, they view it as either “wider belief

systems and cultural frames [that] are imposed

on or adopted by individual actors and organi-

zations” (Scott, 1995: 44) or as “understandings

and scripts [that] emerge out of actions as well

as guide them” (Scott, 1995: 45), respectively.

This subtle but powerful shift of ontology from

social realism to social constructionism pre-

sents possibilities and problems for entrepre-

neurship research.

IMPLICATIONS OF AN ACTION FRAMEWORK

It is not our purpose in this article to act as

proponents or critics of social realism or social

constructionism. Rather, we merely wish to il-

lustrate that the many economic theories of the

entrepreneur that are so influential to manage-

ment theory today are, at their core, theories of

action that are laden with ontological assump-

tions. These assumptions influence not only

which components of action are discussed but

also the way that opportunity is conceptualized.

Recognition of this fact enables scholars to draw

from these theories in a more productive man-

ner, both theoretically and empirically.

We propose that an action framework can

lead to more productive discussions regarding

the important entrepreneurial concept of oppor-

tunity (Brown, Davidsson, & Wiklund, 2001;

Shane & Venkataraman, 2000; Stevenson &

Gumpert, 1985). Shane and Venkataraman (2000)

draw from economic theory and present an elo-

quent argument for the objective existence of

opportunities. In a highly original study, Shane

(2000) pushes this paradigm to the empirical

front by establishing the mediating role that

prior knowledge has in both the discovery and

146 JanuaryAcademy of Management Review

exploitation of opportunity. Perhaps what is

most interesting about this study, in relation to

our argument, is that the same term opportunity

is used to denote both the third-person opportu-

nity of the new technology and the first-person

opportunity of the various individuals who per-

ceive it in different ways. For example, Shane

states, “Potential entrepreneurs should look to

discover opportunities in what they know rather

than in what is popular with other entrepre-

neurs” (2000: 467). Language such as this con-

veys a belief in the objectivity of third-person

opportunity, even if epistemological differences

produce different interpretations of it.

Other entrepreneurship scholars who have

exhibited a qualified subscription to this para-

digm have provocatively proposed the use of

signal detection theory (MacMillan & Creelman,

1991; McFall & Treat, 1999; Swets, 1996) for exam-

ining opportunity recognition and evaluation

(e.g., Baron, 2002; McMullen & Shepherd, 2003).

However, the question of whether an error of

commission is attributable to entrepreneurial

error in terms of misperceived opportunity, poor

strategy formulation, poor strategy implementa-

tion, or unfavorable changes in environmental

conditions becomes, at best, difficult to deter-

mine using this ontological foundation.

In stark contrast to these social realists are

action enthusiasts who exhibit social construc-

tionist sympathies. For example, Gartner,

Carter, and Hills (2001) argue that opportunities

are often enacted phenomena with no existence

independent of the individuals who envision

and/or exploit them. For these scholars, discus-

sion of third-person opportunity undermines

their world view. They fear that the language

that accompanies this realist ontology reflects

an artificially constructed framework superim-

posed on the phenomenon by scholars to help

them make sense of it. They suggest that the

consequence of such a framework is that it ob-

fuscates scholarly understanding of the phe-

nomenon as it actually occurs. For example, by

using words in surveys such as “discovery,”

which they argue are not used by people when

confronting the phenomenon in a natural state,

scholars distort findings by introducing their

own conceptions of the phenomenon to be ex-

plained. Although the debate regarding which

ontology is more suited to entrepreneurship re-

search is integral to “good” science (Cannella &

Paetzold, 1994), it remains diluted as a discus-

sion of the nature of opportunity and unrecog-

nized for what it is—a philosophical debate

about the nature of the social world and human

action (Burrell & Morgan, 1979).

Therefore, the primary difference between en-

trepreneurship scholars with social realist sym-

pathies and those with social constructionist

sympathies concerns the nature of third-person

opportunity. Is an “opportunity” conceived to be

“out there” awaiting discovery, evaluation, and

exploitation? Or does one begin with an individ-

ual’s knowledge and motivation and attempt to

determine how that influences his or her mental

representation of the environment? We propose

two potential approaches for reconciling these

contrasting views: one pragmatic and the other

conceptual.

A Pragmatic Approach

Perhaps the easiest way to address the philo-

sophical nature of third-person opportunity is to

avoid it. Arguably, this is precisely what many

positivist psychologists, such as Simon, Tversky

and Kahneman, and Giegerenzer, have done.

Using experimental methods or controlled tasks,

the researcher is able to observe individual be-

havior within an “objective,” somewhat micro-

cosmic reality. For example, both Simon’s work

using the game of chess or Tversky and Kahne-

man’s framing experiments examine judgment

and decision making regarding an “objective”

answer (i.e., one that is logically right or wrong).

Historically, the quality of the individual’s deci-

sion has been determined by equating “good”

judgment with “rational” judgment as deter-

mined by statistics, or probability theory

(Hastie, 2001). Accordingly, these tasks are not

subject to multiple interpretations.

This same approach can be used to analyze

the decision of whether to engage in entrepre-

neurial action. Because one can control within

an experiment the amount of information pre-

sented to the individual, the researcher can con-

trol the distance between the noise and third-

person opportunity means in such a way as to

ensure substantial distance or close proximity.

This suggests that Shane subscribes to a social realist

ontology, but it is a “critical realism,” in which there are

limits on individuals’ epistemological abilities, versus a

“naive realism,” in which no such limitations exist (Lincoln

& Guba, 2000).

2006 147McMullen and Shepherd

Thus, regardless of whether an “opportunity” in

the real world ever objectively exists, one can

create an experiment in which an opportunistic

situation does undoubtedly exist (i.e., the poten-

tial for arbitrage).

However, such an experiment suffers from

some of the critiques leveraged against Knight’s

theory above (i.e., a decision scenario is forced

on the decision maker, leaving the researcher

uninformed about the allocation of entrepre-

neurial attention). In addition, whether a situa-

tion can be classified as an opportunity if an

individual recognizes it and deems it unworthy

of exploitation, and whether an arbitrage oppor-

tunity is an “entrepreneurial” opportunity, are

questions that require theoretical answers that

would most likely go unaddressed under this

approach.

One final observation regarding this solution

is that it is not so much behavioral as it is

cognitive or decisional in nature. Sarasvathy’s

(2001a,b) work on effectuation within a slightly

more natural setting epitomizes the promising

potential of this method. By using “think-aloud”

protocols to examine how entrepreneurs think

about opportunity, she successfully sidesteps

the configural issues that are often embedded in

economic theories of the entrepreneur. In fact,

the importance of ontological assumptions is

effectively eliminated by focusing only on per-

ceived behavioral control and not the actual be-

havioral control associated with subsequent ac-

tion. This obviates the need to worry about

whether it was the opportunity, the execution, or

the environment that prevented successful en-

trepreneurial action. This approach works well

if one is interested in the cognitive elements of

opportunity, which is Sarasvathy’s objective.

However, its extension to action explanation re-

quires one to determine whether the findings on

how entrepreneurs think they would go about

acting entrepreneurially correspond to how they

actually behave under natural circumstances.

A Conceptual Approach

Given these various observations, we propose

a conditional compromise that is consistent with

an action framework and that includes eco-

nomic theories of the entrepreneur but is not

exclusive to their ontological assumptions. We

argue that the willingness to bear the perceived

uncertainty associated with an entrepreneurial

act is representative of a belief-desire configu-

ration, in which belief of what to do is a function

of knowledge and desire of why to do it is a

function of motivation. This conceptualization is

identical to an intention as described in the con-

text of action theory. For instance, Greve notes:

Actions are distinguished from other kinds of hu-

man behavior by the way people usually explain

how they came about: They have reasons for ac-

tions. This means that individuals do what they

do because they desire (want) to reach a goal and

believe (expect) that the action is an appropriate

or necessary means of reaching it. The beliefs

and desires “rationalize” the action (Davidson,

1980a) (Greve, 2001: 437).

Given a specific action, the presence of a specific

intention (belief-desire configuration) cannot be

doubted. When an observed behavior is in fact

the expression of a certain action, then a corre-

sponding intention (constellation of desires and

beliefs) is necessarily implied; the hypothesis

that this action expresses these particular de-

sires and beliefs cannot be disproven by empiri-

cal means. The assertion that a person, when he

or she performs an action, does so due to certain

beliefs (expectations) and desires (values) is triv-

ially true, because whatever he or she performs

would not, in any other case, be an action (Greve,

2001: 439).

Greve suggests that action, by definition, is

intentional behavior. Therefore, one cannot start

with the behavioral portion of the action and

argue that increases in the intention caused the

action. This would be tautological, given that

the action partially consists of the intention.

However, one could avoid tautology by starting

with the strength of the intention and predicting

whether the intended behavior subsequently

ensues. Such an approach to entrepreneurial ac-

tion would equate the concept of opportunity

with that of intention. This action approach (in

which the researcher examines the composition

of the prospective entrepreneur’s intention as it

In the more problematic context of a natural setting,

scholars have investigated the role of knowledge in entre-

preneurship by using measures of general and specific hu-

man capital. General human capital typically is operation-

alized by years of schooling (Rauch & Frese, 2000; see, for

example, Bates, 1995; Evans & Leighton, 1989; and Davidsson

& Honig, 2003). In the entrepreneurship literature, the most

frequently investigated aspect of specific human capital is

previous start-up experience (Bates, 1995; Cooper, Folta, &

Woo, 1995; Davidsson & Honig, 2003; Wright, Robbie, & En-

new, 1997).

148 JanuaryAcademy of Management Review

forms and then determines whether subsequent

behavior occurs

)avoids the tautology inherent

in some entrepreneurial studies, the erroneous

ascriptions of risk tolerance or superior innova-

tive abilities made by observers, and the post

hoc rationalization common to retrospection

bias.

In addition, paradigm wars regarding onto-

logical assumptions become less important be-

cause, regardless of whether social environ-

ments are objective or subjective phenomena,

the impact they have on individuals’ intentions

are real just the same. Therefore, it seems that

the ontological concerns discussed in this arti-

cle only come to the forefront when one is inter-

ested in what accounts for the origination of the

intention or the quality of the outcome produced

by the entrepreneurial action. Thus, it appears

that although the study of entrepreneurial ac-

tion consists of an empirically tractable center

capable of paradigmatic reconciliation, entre-

preneurial action is “bookended” by two philo-

sophically intractable positions grounded in

metaphysical assumption. Whereas for the real-

ist these bookends consist of opportunity recog-

nition and accuracy, for the constructionist they

represent the origination of intention and

whether individuals can realistically impose

their will on any system.

CONCLUSION

We began this article with an examination of

the role that uncertainty plays in economic the-

ories of the entrepreneur. After establishing the

need to consider knowledge and motivation con-

comitantly when examining entrepreneurial ac-

tion, we proposed a two-stage conceptual model

of entrepreneurial action, built on these two con-

structs and consisting of an attention stage fo-

cused on the assessment of third-person oppor-

tunity (a possible opportunity for someone) and

an evaluation stage focused on the assessment

of first-person opportunity (a possible opportu-

nity for the actor). We then used this model to

illustrate the conceptual limitations of using

system-wide theories of the entrepreneur at the

individual level of analysis by reinterpreting

three economic theories considered highly influ-

ential to managerial thought on the subject of

entrepreneurial action. Following this, we dis-

cussed how the recognition that these theories

of the entrepreneur are theories of action, laden

with ontological assumptions about the social

world, highlights the need for greater scholarly

attention to both knowledge and motivation in

future theory building and empirical testing. Fi-

nally, we offered a pragmatic and a conceptual

solution, inspired by an action framework, as a

means of sidestepping or acknowledging philo-

sophically intractable areas associated with the

examination of entrepreneurial action.

Given the renewed interest in the individual

within entrepreneurship research and the im-

portance of the concept of opportunity to the

emerging field of entrepreneurship, we believe

that scholars who employ these economic theo-

ries of the entrepreneur will benefit from a

deeper understanding of their predictions, as-

sumptions, limitations, and possibilities. Not

only does it appear that an action framework

provides this benefit to entrepreneurship, but

also we believe that entrepreneurship provides

a promising phenomenon to extend scholarly

understanding of the economics, psychology,

and sociology of human action.

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152 JanuaryAcademy of Management Review

From independent inventor to inventor entrepreneur: an application of the knowledge spillover theory of entrepreneurship

Article

Full-text available

Jun 2024
SMALL BUS ECON

Plain English Summary Spillovers play a strong role in entrepreneurial processes, but are not always positive influences. While social and geographic spillovers can lead to emergent entrepreneurship, industry ties can hold back latent entrepreneurs. This helps answer the question: where do new firms come from? In this study, we explore the entrepreneurship process of independent inventors to understand what prompts these latent entrepreneurs to transition from creating a new technology to launching a new business. Our focus is on “knowledge spillovers,” the sharing of ideas across regions, social networks, and industry. We find that social and geographic spillovers increase the likelihood of inventors becoming entrepreneurs. Additional findings reveal that industry spillovers may limit entrepreneurship, especially for those with personal financial resources, suggesting that affiliations can be both a source of knowledge and a constraint on entrepreneurial pursuits. This insight reveals the complex interplay of knowledge-sharing in shaping the entrepreneurial process of independent inventors.

Perception of hypotheticality in technology-based business ideas: effects on Opportunity Beliefs from a Construal Level Theory perspective

Article

Full-text available

Jun 2024

This research investigates how entrepreneurs perceive the hypothetical nature of technologies (based on situations that are often imagined or theoretical) as a foundation for entrepreneurial endeavors and how this perception influences the formation of business Opportunity Beliefs. Drawing on the Construal Level Theory, we explore the relationship between the perceived hypotheticality of technologies and Opportunity Beliefs. Two experimental studies are conducted to examine these relationships, with Study 1 ( n = 177 entrepreneurs) focusing on the perception of innovative technologies as more distant or hypothetical, and Study 2 ( n = 404 entrepreneurs) delving into how the perceived distance to technology influences Opportunity Beliefs. The results indicate that entrepreneurs view more innovative technologies as more hypothetical and that hypotheticality mediates the relationship between the perceived degree of innovation and Opportunity Beliefs. We find evidence that Entrepreneurs tend to view the feasibility and fit/alignment of business opportunities more favorably when they perceive the psychological distance (hypotheticality) of the opportunity as closer rather than more distant. However, the difference this difference is nonsignificant in how they evaluate the desirability of the opportunity in any psychological distance. These results provide insight into the cognitive processes of entrepreneurs and offer implications for understanding how entrepreneurs perceive and evaluate business opportunities.

Stuck in the playground: a (failed) organizational entrepreneuring process

Article

Jun 2024

Entrepreneurship Development in European Union - Challenges and Opportunities for Young People

Article

Full-text available

Jun 2024

At the European Union level, the importance of entrepreneurship and supporting young people's intentions to open and develop new businesses was highlighted. In this context, the purpose of our research is to analyze the challenges of entrepreneurship among young people, in a comparative perspective, relating the perspective of Romanians to that of the citizens of the European Union, in general. The research pursued four objectives: (1) identification of personal and social reasons for entrepreneurial activity; (2) investigation of barriers to entrepreneurial activity; (3) identifying the necessary support resources for starting a business; (4) the analysis of the variables that influence the preference of young people to become entrepreneurs. The analysis of the results was based on data published in 2022, in Euro barometer 513 - Social entrepreneurship and youth. The data were processed combining both descriptive and inferential analysis (binary logistic regression). The results show that, both at the level of Romania and European Union, the most important reason why young people want to be entrepreneurs is the freedom to choose the working conditions (time, location) and to be their own boss. At the same time, the main barriers that block young people in their initiative to become entrepreneurs are the lack of education, financial resources, legal, administrative, and personal aspects. Young people in Romania, like everyone else in the European Union, need to be supported, especially educationally and financially, to open a business. They are prepared, for the necessary initial investment, to call on their own resources (savings or salary), but also on external sources (family, friends, and banking institutions). The results estimate the relationship between the entrepreneurship intention of young people and a set of factors, underlying several differences between Romanian young people and those from EU27. Keywords: Entrepreneurship, Young People, European Union, Entrepreneurship, Motivation, Challenges.

A Model to Measure the Impacts of Productive, Unproductive and Destructive Entrepreneurship on Economic Growth and Development in Africa

Chapter

Jun 2024

Muritala Awodun

There is a general consensus that Schumpeterian-Kirznerian entrepreneurs are individuals who either find or create value within the society (Schumpeter in Capitalism, socialism and democracy, 3rd ed., HarperCollins, 2008; Lucas and Fuller in Journal of Business Venturing Insights 7:45–49, 2015). This position led William Baumol to draw an important distinction between productive and unproductive entrepreneurs (Baumol in Journal of Political Economy 98:893–921, 1990; Thierer, http://www.learnliberty.org/blog/youre-in-joseph-schumpeters-economy-now, 2017). He described productive entrepreneurs as people engaged in enterprising activities that generate value within the society, such as the creation of new and innovative technologies (Baumol and Strom in Strategic Entrepreneurship Journal 1:233–237, 2007; Padilla and Cachanosky in Journal of Enterprise and Public Policy 5:161–175, 2016). He, however, also raised the fact that entrepreneurs could be unproductive if they did not create value, or are actively harmful if they engage in destruction of value (Elert and Henrekson in Small Business Economics 47:95–113, 2016). This chapter is an attempt to develop a model to measure the positive and negative impacts of entrepreneurship in our society with the productiveness of the former and the unproductiveness of the latter measured in relation to their contributions (in terms of value addition) to economic growth and development. As a part of the purpose of this chapter contribution, the various perspectives from which entrepreneurship has been viewed, and the magnitude of contributions of the positive perspectives as against the negative perspectives are presented, to provide basis for the construct of the model to measure the impacts of entrepreneurship on economic growth and development in our society.

Institutional environments for circular start-ups: Insights from an entrepreneurial European region

Article

Jun 2024

Circular start-ups (CSUs) are gaining popularity to radically rethink the linear resource flows of global production systems and adopt ambitious approaches towards a circular economy from inception. For CSUs, the institutional environment is particularly relevant; this is because the complex nature of sustainability challenges requires a deep engagement with institutions to drive transitions from linear to circular practices. This article analyses how and why institutional factors influence CSUs in the highly entrepreneurial region of Catalonia in Spain. Based on a multiple case study, our findings demonstrate that CSUs are affected by informal institutions through founder motivations, their ability to create opportunities and social values. Formal institutions influence CSUs regarding the previous experience of founders, accessible ecosystem actors and supportive laws and regulations. These findings are important for effective policymaking to develop adequate support mechanisms and understand the particular challenges and opportunities CSUs face compared to traditional start-ups.

Leveraging employee green entrepreneurial orientation for enhancing environmental performance: The multi-level role of green creativity and green decision comprehensiveness

Article

Jun 2024
Eur Manag J

Decoding Entrepreneurial Mindset: From Metacognitive Awareness, Growth Orientation and Opportunities Capitalization to Entrepreneurial Success

Chapter

Jun 2024

Pre-organization theory: an evolutionary approach integrating memetics, inducement-contribution theory and generalized darwinism

Article

Jun 2024

Benjamin Caldwell Powell

Purpose Organization theory seeks to explain how people coordinate their behaviors to achieve common objectives, but it has offered little insight into how organizations emerge from such coordination. Fully understanding entities requires knowing their origins. The purpose of this paper is to draw attention to and to suggest an approach for fortifying a foundational weakness in organization theory: pre-organization theory. Design/methodology/approach To develop pre-organization theory, this paper employs an evolutionary approach that integrates three theories. This paper first employs memetics to articulate a unit of selection, the i-memeplex, and next introduces inducement-contribution theory to tailor the i-memeplex to pre-organization, yielding a founder’s mental map for exchanges of inducements and contributions. It then applies generalized Darwinism to complete its evolutionary theory of pre-organization. Findings Memetics, inducement-contribution theory, and generalized Darwinism can be integrated to create a promising theoretical solution, but further investigation is needed to assess the empirical and practical value of pre-organization theory. Originality/value This paper contributes to organization theory by (1) explicating a foundational weakness in organization theory – its lack of pre-organization theory – and (2) integrating a novel set of theories to develop an evolutionary theory of pre-organization.

The role of actively open-minded thinking and control orientation in venture capital investment outcomes

Article

Jun 2024

The achieving society.

Book

Jan 1961

David C. McClelland

Toward a Hermeneutical Economics:Expectations, Prices, and the Role of Interpretation in a Theory of the Market Process

Chapter

Jan 1986

Richard Michael Ebeling

Equilibrium versus Understanding

Book

Sep 1995

Mark Addleson

Economy and society: An outline of interpretive sociology (an excerpt)

Article

May 2018

M. Weber

This section presents the third volume of Max Weber's fundamental work Economy and Society which has been translated into Russian for the first time. The third volume includes two works devoted to the sociology of law. The first, 'The Economy and Laws', discusses differences between sociological and juridical approaches to studies of social processes. It describes peculiarities of normative power arenas (orders) at different levels and demonstrates how they influence the economy. The second, 'Economy and Law' ('Sociology of Law'), reviews the evolution of law orders (primarily, the three "greatest systems of law" including Roman Law, Anglo-American Law, and European Continental Law) in the context of changes in the organization of economy and structures of dominancy. Law is considered an influential factor of the rationalization of social life which in turn is affected by a rationalized economy and social management. The Journal of Economic Sociology here publishes an excerpt from the chapter 'Law, Convention and Custom' in this third volume, which shows the role of the habitual in the formation of law; explains the importance of intuition and empathy for the emergence of new orders; and discusses the changeable borders between law, convention and custom. The translation is edited by Leonid Ionin and the chapter is published with the permission of HSE Publishing House. © 2018 National Research University Higher School of Economics. All rights reserved.

Organizational Actions in Response to Threats and Opportunities

Article

Oct 2001

Bisociation, Discovery, and the Role of Entrepreneurial Action

Chapter

Aug 2017

The competitive dynamics literature, which reflects the market process movements of firms in pursuit of profits, has begun to identify the alternative actions firms can undertake to build, defend, and sustain superior profits. One class of action that is prominent in this literature is entrepreneurial actions. For example, Grimm and Smith use entrepreneurial action to characterize how firms move to exploit new opportunities that rivals have yet to perceive. Schumpeter was perhaps the first to describe entrepreneurial action. He used the expression to depict the actions firms employ to break away from the everyday status quo competition in pursuit of entrepreneurial rents. Kirzner employed the idiom to clarify how markets resolve information problems and move toward equilibrium.

A Study of Thinking

Article