Sarasvathy, Causation and Effectuation-Toward a Theoretical Shift from Economic Inevitability to

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t Academy of Management Review 2001, Vol. 26, No. 2, 243-263.

TOWARD CAUSATIONAND EFFECTUATION: A THEORETICAL SHIFTFROM INEVITABILITY TO ECONOMIC ENTREPRENEURIAL CONTINGENCY SARAS D. SARASVATHY University of Washington
In economics and management theories, scholars have traditionally assumed the existence of artifacts such as firms/organizations and markets. I argue that an explanation for the creation of such artifacts requires the notion of effectuation. Causation rests on a logic of prediction, effectuation on the logic of control. I illustrate effectuation through business examples and realistic thought experiments, examine its connections with existing theories and empirical evidence, and offer a list of testable propositions for future empirical work.

I now am eagerly striving, for example, to get this truth which I seem half to perceive, into words which shall make it show more clearly. If the words come, it will seem as if the striving itself had drawn or pulled them into actuality out from the state of merely possible being in which they were. How is this feat performed? How does the pulling pull? How do I get my hold on words not yet existent and when they come by what means have I made them come? Really it is the problem of creation; for in the end the question is: How do I make them be?... ... Sustaining, persevering, striving, paying with effort as we go, hanging on, and finally achieving our intention-this is action, this is effectuation in the only shape in which, by a pure experience-philosophy, the whereabouts of it anywhere can be discussed. Here is creation in its first intention, here is causality at work (James, 1912: 181, 183). We know how to advise a society, an organization, or an individual if we are first given a consistent set of preferences. Under some conditions, we can suggest how to make decisions if the preferences are only consistent up to the point of specifying a series of independent constraints on the choice. But what about a normative theory of goal-finding behavior? What do we say when our client tells us that he is not sure his present set of

values is the set of values in terms of which he wants to act? (March, 1982:74). Walk into an MBA classroom anywhere in the world. Chances are the discussion revolves around a decision or a set of decisions to be made. For example, classes with a more economic bent (e.g., managerial economics, marketing, strategy) might be discussing the pricing decision. The standard formal approach to this decision involves setting the marginal revenue equal to the marginal cost; a more adaptive approach might involve doing market research to discover the shape of the demand function and to arrive at a price that the market will bear. In another example, classes with a more psychological bent (e.g., human resources management, organization behavior, leadership) might be discussing personnel decisions, such as hiring the best person for the job or managing and/or leading a team. Approaches might range from psychometric measurements to avoiding well-understood biases, such as anchoring, escalation, groupthink, and so on. These decisions in economics and management may be discussed at several levels: individual, firm, industry/market,...
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