Causation and Effectuation Theory

Topics: Prediction, Entrepreneurship, Future, Causality / Pages: 4 (1314 words) / Published: Mar 13th, 2011
Effectuation and Causation – Managerial Economics

Causation and effectuations are two processes that may be used to explain how a new business is created. Both are evidently different. The following section will attempt to clearly distinguish both processes.

Causation is effect dependent. It can be defined as the actions of causing something, or the relationship between the cause and the effect. In economics, the notion of causation can be viewed as an explanation for the birth of economic entities, such as markets and the firm. As Saras D. Sarasvathy states: “Causation processes take a particular effect as given and focus on selecting between means to create that effect.” The underlying assumption in this theory is that if one can predict the future, it can be controlled. Causation focuses on using different means in order to achieve an agreed upon goal.

Lets look at a simple example to clarify the notion. A chef in a kitchen wants to prepare a meal. His first step is to contact the clients, and ask them what they want to eat. From there, he goes to the shop and buys the necessary ingredients to complete his menu. This qualifies as causation, as the chef begins with the final dish in mind, and later decides which ingredients are necessary to make the desired meal.

The example simplifies the causation theory. Indeed, under this notion, entrepreneurs envision a clear notion of the outcome they want to achieve, and from there, take necessary measures to achieve this goal. Thus, causation involves a great amount of time and research in order to come out with realistic outcomes and expectations for the project. Entrepreneurs start with the big picture of the project, and then take their decisions progressively on all the details of their venture, in order to attain their ultimate goal.

The theory of causation requires some detail in order to be applied. Along with having set a specific goal, alternative means need to be established. The means of

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