Effectual Reasoning in Entrepreneurial Decision Making: Existence and Bounds

That entrepreneurs create firms is a simple fact. But that entrepreneurs often create firms in the absence of markets is an idea that is recently gaining ground with researchers (Shane & Venkataraman, 1999). The phenomenon is further complicated by the fact that much of the information required to bring new markets into existence itself does not come into existence until those markets are created (Arrow, 1974). In an attempt to tackle the issues raised by this central research question in entrepreneurship, Sarasvathy (2001) has proposed effectuation as the dominant decision model for entrepreneurial decision making, particularly in the absence of pre-existent markets. Through a verbal protocol study of 27 expert entrepreneurs, this paper establishes the existence of effectual reasoning in their cognitive processes and delineates the bounds between their use of causation and effectuation. In quantitative terms, over 63% of the subjects used effectuation more than 75% of the time.

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Academy of Management Journal
Saras Sarasvathy
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