Effectuation Publications Library
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COGNITIVE INSIGHT AND ENTREPRENEUR DECISION-MAKING: AN EXPERIMENTAL INVESTIGATION OF SELF-REFLECTIVENESS IN OPPORTUNITY IDENTIFICATION (INTERACTIVE PAPER)
DAVID M TOWNSEND Steven M Barr
Identifying and exploiting opportunities is frequently described as the most fundamental of entrepreneurial behaviors (Shane & Venkataraman, 2000; Venkataraman, 1997). However, recent work criticizes the teleological basis of most extant theories of the opportunity identification process arguing that many entrepreneurs do not start firms with specific goals or outcomes in mind (Sarasvathy, 2001). Rather, “effectual” entrepreneurs initiate operations with only a general goal in mind (i.e., avoid significant losses). As the market and firm evolves, more specific plans are then formulated and action becomes increasingly more intentional. In reviewing effectuation theory, however, a major question remains unanswered—specifically, why would clearly specifying goals up-front prevent entrepreneurs from taking advantage of contingencies that may arise during the firm creation process? An unstated assumption implied in effectuation theory appears to be that entrepreneurs fully specifying desired outcomes a priori would be less likely (or less willing) to make radical adjustments to their plans. At the base of this assumption is the implied belief that a fundamental decision bias (i.e., escalation of commitment) locks entrepreneurs with strong prior goals into particular courses of action, and, therefore, market dynamism which shifts demand away from the expected trajectory of the market would generate massive losses for the venture.