Ecological rationality and entrepreneurship: How entrepreneurs fit decision logics to decision content and structure

During new venture creation, entrepreneurs make decisions in a variety of areas from seeking funding to hiring employees. When and why entrepreneurs use effectual or causal logics to make such decisions is poorly understood. In this study, we integrate ecological rationality theory and effectuation theory to examine how the nature of decisions influences entrepreneurs' use of decision logics. In a qualitative study with 41 entrepreneurs across 290 decisions, we explore how decision content (what the decision is about) and decision structure (what information about a decision is represented in the decision-maker's mind) influence entrepreneurs' use of effectual or causal logics. We extend our findings in an experiment with 224 entrepreneurs where we manipulate decision structure. Our results suggest that decision content influences entrepreneurs' mental representations of decision structure. In turn, the combination of two elements of decision structure — decision complexity and the perceived costs of implementing different options — drives entrepreneurs' use of decision logics. We contribute to the effectuation literature by integrating it with ecological rationality theory, introducing the concept of decision fit as a driver of decision logics, and developing our understanding of hybrid decision-making (the simultaneous use of effectuation and causation).     

Weaving network theory into effectuation: A multi-level reconceptualization of effectual dynamics

This paper positions effectuation as a network-driving and network dependent phenomenon and suggests that understanding networks and network processes is essential to understanding the dynamics of effectuation. We argue that the implementation of effectuation is influenced by the nodal, relational, and structural characteristics of pre-existing and emerging networks, and by the processes through which these networks come about. We use these arguments to develop a multi-level, multi-theoretical reconceptualization of effectuation that provides for distributed agency and collective cognition of network members. We allow for the simultaneous and interactional use of effectual and causal logics, as well as the co-construction of knowledge, identity, and social capital within and across network levels. Our model also addresses changing uncertainty as opportunities develop, nuances of effectual interactions, and evolving market dynamics. Our propositions and reflections offer directions for further studies at the intersection of network and effectuation research.Executive summaryThere is little doubt that effectuation is reshaping how we think about entrepreneurial cognition and behavior. A core argument is that under conditions of uncertainty, entrepreneurs can co-create opportunities by collaborating with other willful agents. This moves us away from classical views of entrepreneurship and positions effectuation as a network-driving and network-dependent phenomenon. Yet, recent debate highlights that effectuation research has paid insufficient attention to the network of external parties involved. As a result, although the extant model of effectuation recognizes the importance of networks, our understanding of the relationship between effectual logic and entrepreneurial networks is far from complete.Several theoretically important and practically relevant questions arise from this knowledge gap. For example if we think about network development, how are potential stakeholders brought to mind and persuaded to commit if end-points and stakeholder preferences are both unknowable? What are the characteristics (i.e. structure, content and governance) of the networks that emerge through these commitments? Reciprocally, how do the characteristics of the emerging network influence effectual processes and outcomes?In this paper, we begin to address this line of questioning by considering effectuation not only at the level of the individual but also through lenses reflective of the three levels of analysis commonly adopted in network research: i) dyadic relationships, ii) the entrepreneurial network, and iii) the market more generally. While we attend to pre-existing networks (the constitution of which is likely to affect the probability of adopting effectual logic), our focus is on linking the individual and emerging networks across these levels.At the level of the individual, we break from prior effectuation research and ascribe new and influential roles to entrepreneurial ideas and instrumental mindsets in focusing an entrepreneur's attention on particular relationships (i.e. the cognitive activation of a cohesive network involving interested and persuadable individuals). At the level of the dyad, we suggest the very nature of interactions between actors can influence individual choice of logic. We specify that stakeholders will expect signs of process legitimacy (e.g. cognitive flexibility on the part of the entrepreneur) before making effectual commitments. We also move away from assumptions about altruistic behavior to suggest that power and influence will accrue to stakeholders whose resources are at risk and/or perceived by others to resolve uncertainty. At the level of the entrepreneurial network, we link effectuation to a brokerage orientation (tertius iungens) that enhances inclusiveness surrounding means and collective cognition. Moreover, we move beyond the narrow view of facilitating and constraining factors portrayed in the effectuation literature to argue that (e.g.) i) with respect to network content, resource specificity will shape possible futures; ii) with respect to governance, trust, supported by social mechanisms will predominate; and, iii) with respect to structure, specific network characteristics will be more supportive of certain aspects of effectuation than others (e.g. cohesive networks are more supportive of collaboration, but may limit the flexibility needed to embrace contingencies). At the market level, we posit that on the one hand, institutions will shape effectual processes. On the other hand, effectual processes are more likely than causal processes to create new institutions and/or supplant existing institutions.Overall, our study contributes to the understanding of both effectuation and networks by offering a multi-level, multi-theoretical re-conceptualization of the dynamics of effectuation. Our arguments should spur research in at least three interdependent areas: i) uncertainty and individual cognition; ii) network processes surrounding interactions and commitments; and iii) the contingent effects of network characteristics on effectuation. For practitioners, our insights should help shape thoughts about i) who to interact with in the face of uncertainty; ii) what stories to tell and how to deal with image management; iii) what to expect during negotiations; iv) how to broker relationships to enhance the ‘co’ in ‘co-creation’; and moreover, v) what network characteristics might facilitate or constrain their efforts.     

Effectuation under risk and uncertainty: A simulation model

Effectuation was first proposed as an expert entrepreneur's decision-making framework under uncertainty, but the applications of effectuation beyond the condition of uncertainty have seen less attention. Using an agent-based simulation model, this paper investigates the effectiveness of effectuation relative to causation in uncertain and risky contexts. The simulation overcomes the shortcomings of think aloud protocols typically used in effectuation research. The results suggest that effectuation outperforms causation in both risky and uncertain contexts until the entrepreneur can predict the future correctly > 75% of the time. This suggests expanding the boundary of effectuation from uncertainty to whenever predicting the future is challenging.     

Causation and effectuation processes: A validation study

We develop and validate measures of causation and effectuation approaches to new venture creation and test our measures with two samples of entrepreneurs in young firms. Our measure of causation is a well-defined and coherent uni-dimensional construct. We propose that effectuation is a formative, multidimensional construct with three associated sub-dimensions (experimentation, affordable loss, and flexibility) and one dimension shared with the causation construct (pre-commitments). As specified by Sarasvathy (2001), we also show that causation is negatively associated with uncertainty, while experimentation, a sub-dimension of effectuation, is positively correlated with uncertainty. The major contribution is the resulting validated scales that measure causation and effectuation.     

Born globals’ decision-making logics during their entrepreneurial process

Journal of International Entrepreneurship - New entrepreneurial logics such as effectuation, bricolage, and causation have become increasingly important in the entrepreneurship literature since the...     

Revisiting the relationship between product and international diversification in new ventures: The moderating effect of effectuation processes

This study examines the relationship between product and international diversification in new ventures, suggesting effectuation processes to be key moderators of this relationship. Effectuation processes allow young firms to attenuate constraints imposed by the liabilities of newness, the uncertainty and the lack of prior diversification experience these firms face and which may significantly restrict the number of growth opportunities they can jointly exploit in the short run. Specifically, the findings indicate that reliance on experimentation, maintenance of flexibility and securement of pre-commitments positively moderate the relationship between product and international diversification in new ventures. From all effectuation processes, only the adoption of the affordable loss principle lacks a significant effect on the link between the two growth strategies. Theoretical and empirical implications are further discussed.     

Co-creation in effectuation processes: A stakeholder perspective on commitment reasoning

In this article, we seek to contribute to theory on market co-creation through effectuation. To achieve this goal, we examine the different kinds of reasoning behind stakeholder commitments in effectuation processes. Although effectual and causal logics sufficiently account for decision-making in instrumental rationality, scholars have paid little attention to value rationality, and how it might influence stakeholder commitments and behavior. Different commitments may follow different rationales, ranging from instrumentally rational commitments based on causal or effectual logics, to value rational commitments based on state-belief or change-belief. The typology of these four commitment reasoning types provides a framework for analyzing stakeholder behavior based on different perceptions of the commitment decision space. Our typology shows that commitments based on value rationality may be qualitatively different from those driven by instrumental rationality and that value rationality may enable commitments under conditions that preclude instrumentally rational actions. Furthermore, different commitments influence market co-creation processes in different ways. In this article, we examine how different commitments affect (1) conflict and effectual churn and (2) the relative path dependence, or shapability, of the market co-creation space. Based on this typology, we propose avenues for future research on co-creation in effectuation processes, with a special focus on stakeholders.     

International network formation,home market institutional support and post-entry performance of international new ventures

Effectuation and causation decision-making logics are noted to be major alternative approaches to international network formation. However, knowledge is lacking on how and the conditions under which the two approaches contribute to post-entry performance of international new ventures (INVs). We integrate the theory of effectuation and institutional development logic to explain how effectuation and causation approaches to international network formation individually and jointly contribute to post-entry performance under varying conditions of home market institutional support. We test our proposed framework on primary data from 228 INVs in a sub-Saharan African economy. Results suggest that greater uses of both effectuation and causation approaches to international network formation are associated with stronger post-entry performance. More interestingly, results show that the joint effect of the two international network formation approaches on post-entry performance is amplified under conditions of low home market institutional support. Our findings provide theoretical and managerial insights on the importance of complementing effectual and causal reasoning in international network formation in weak home market institutional environments.     

Predictive and effectual decision-making in high-tech international new ventures – A matter of sequential ambidexterity

This study investigates the international opportunity exploration and exploitation processes of high technology international new ventures (INVs) operating in the global medical devices sector. Drawing upon the effectuation and causation perspectives, we contribute to the micro-foundations of international entrepreneurship research in the early innovation development space by focusing on decision-making logics of techno-entrepreneurs of INVs. Specific focus is afforded to the phases of their exploration and exploitation of international opportunities leading to international new venture creation. In the pre-start-up and start-up stages of international new ventures, we find that sequential ambidexterity applies to how the subject firms manage the exploration and exploitation of opportunities in the delivery of their innovations to global markets.This research advances prior international entrepreneurship studies by focusing on the opportunity and innovation processes on the individual level. We identify different decision-making logics in the different phases and contrary to earlier findings in the international entrepreneurship (IE) area, we found causation logic to dominate the initial stages of exploration and effectuation logic, in the latter stages. Prior commercial experience presented itself as a key determining factor in the decision-making path chosen by international techno-entrepreneurs. Our study further extends the view of organizational ambidexterity by offering empirical insights into the relevance of sequential ambidexterity for understanding the processes of innovation exploration and exploitation in high-tech INVs and the decision-making logics driving these processes.     

Foreign market entries,exits and re-entries: The role of knowledge,network relationships and decision-making logic

We focus on the following question: how are knowledge, network relationships and decision-making logic interrelated throughout the internationalization process – foreign market entries, exits and re-entries? We contribute to the internationalization literature, network approach and effectuation theory that have not examined these interrelationships during internationalization – especially de- and re-internationalization – in detail yet. Thereby, we provide a more complete view of internationalization. Based on a single punctuated longitudinal case study, we show that lack of knowledge results in mostly effectual (opportunity-driven) decision-making: finding customers via weak ties, trade fairs and unsolicited export orders and experiencing numerous market exits and re-entries due to “experimenting”. Knowledge acquisition leads to more causal (systematic, plan-driven) decision-making and stronger ties, but serendipitous (“by chance”) entries can still occur, and exiting and re-entering foreign markets may continue. We suggest that managers should network and acquire knowledge actively, use both decision-making logics and accept uncertainty as normal during internationalization.     

Enacted identities in the university spin-off process—bridging an imaginative gap

This paper employs a case study to explore the interdependencies between enacted role identities and behavioural logics of eight inventor-founders embedded in university spin-off venturing. The major tendencies in the findings suggest that the inventor-founders enact their academic role identity following three distinct paths; re-use, return or discard. Based on these findings, two propositions are developed. Firstly, it is proposed that some academic founders may find themselves in an identity dilemma; choosing between returning to their academic roots normatively speaking or discarding their academic role identity to pursue entrepreneurial opportunities. Secondly and as an alternative, it is suggested that effectuation logics allows inventor-founders situated in volatile international environments to re-use their academic role identity as an important means in leveraging new entrepreneurial opportunities. Consequently, practical implications are drawn recommending that services, such as incubators and tech-transfer offices, incorporate tools that accommodate and assist inventor-founders in this kind of identity dilemma or alternatively employ training programs inspired by an effectuation approach.     

Effectuation,Exploratory Learning and New Venture Performance: Evidence from China

This paper examines the effect of effectuation on new venture performance in the context of Chinese transitional economy. To determine how new ventures benefit from effectuation, we examine the role of exploratory learning as a key mediator. Using data from 266 Chinese new ventures, our results show that effectuation has a positive effect on new venture performance. Exploratory learning plays a fully mediating role in the relationship between effectuation and new venture performance. This empirical evidence contributes to the development of the theory of effectuation and also provides managerial guidelines for new ventures facing uncertain business environments like transitional economies.     

Social interaction via new social media: (How) can interactions on Twitter affect effectual thinking and behavior?

Social interaction plays a central role in effectuation processes, yet we know little about the implications for effectuation when an entrepreneur interacts via particular channels such as social media. To address this gap, our paper uses an inductive, theory-building methodology to develop propositions regarding how effectuation processes are impacted when entrepreneurs adopt Twitter. Twitter is a microblogging platform that can facilitate a marked increase in interaction. We posit that Twitter-based interaction can trigger effectual cognitions, but that high levels of interaction via this medium can lead to effectual churn. We also posit that there is one factor, perceived time affordability, that predicts the level of social interaction in which an entrepreneur engages via Twitter. Further, we propose two factors that moderate the consequences of social interaction through Twitter. These factors are community orientation and community norm adherence. Implications for our understanding of effectuation, of social interaction, and of the impact of social media on entrepreneurial firms are discussed.     

Antecedents and consequences of effectuation and causation in the international new venture creation process

The selection of the entry mode in an international market is of key importance for the venture. A process-based perspective on entry mode selection can add to the International Business and International Entrepreneurship literature. Framing the international market entry as an entrepreneurial process, this paper analyzes the antecedents and consequences of causation and effectuation in the entry mode selection. For the analysis, regression-based techniques were used on a sample of 65 gazelles. The results indicate that experienced entrepreneurs tend to apply effectuation rather than causation, while uncertainty does not have a systematic influence. Entrepreneurs using causation-based international new venture creation processes tend to engage in export-type entry modes, while effectuation-based international new venture creation processes do not predetermine the entry mode.     

Predicting behavioral loyalty through corporate social responsibility: The mediating role of involvement and commitment

This study examines whether consumers' perceptions of corporate social responsibility (CSR) activities can predict behavioral loyalty, and how two attitudinal constructs drawing from the means-end chain model—involvement and commitment—mediate this relationship. A field study of 634 customers of an Australian professional football team was conducted by combining attitudinal surveys with actual behavioral data collected one year later. The results revealed a positive mediating effect of involvement on the relationship between perceived CSR and behavioral loyalty. However, when the effect of involvement on behavioral loyalty was mediated by commitment, the indirect effect of perceived CSR turned negative. The findings of this study indicate that the contribution of CSR initiatives to behavioral loyalty is not as robust as past research suggests, and is also contingent upon specific psychological states activated by consumers' perceptions of such initiatives.     

Retail price discount depth and perceived quality uncertainty

This study analyzes the impact of retail price discount depth on consumer perception of quality uncertainty and its implications. While the extant research finds a negative relationship between perceived mean quality (indicated by the mean of quality perception) and price discount, we suggest an inverted-U-shaped relationship between perceived quality uncertainty (indicated by the variance of quality perception) and price discount. The underlying mechanism for this phenomenon is that consumer attribution of price promotion varies by discount depth. Specifically, when provided with a moderate discount (compared with a low or high discount), consumers cannot ascertain whether the discount is related to product quality; thus, they perceive a higher level of quality uncertainty and correspondingly rely more on other cues, such as country of origin and product popularity information, to make inferences about quality. Those findings have implications for setting the depth of retail price discounts and providing product quality-related information in the context of price promotion.     

Home country institutional impediments and international expansion of developing country SMEs

Though institutional contexts are critical drivers of firms’ international expansion, very limited research efforts have focused on how and when these factors facilitate developing country firms’ outward market activities. This study derives insights from the institution-based view and activity theory to test how perceived environmental uncertainty mediates the link between institutional impediments and international expansion. Using data from small and medium-sized firms from Ghana (N = 222) and Ethiopia (N = 203), the findings suggest that high levels of perceived regulatory and cognitive impediments amplify the mediation effect of perceived environmental uncertainty on the degree of SME’s international expansion. Additionally, the findings suggest that, when political connections are well-developed and deployed, the potency of perceived environmental uncertainty as a driver of international expansion is attenuated. Moreover, the study finds that varying levels of home-country industry competition moderate the relationship between perceived environmental uncertainty and the degree of international expansion. Implications relating to theory and practice are discussed.     

Career motives and entrepreneurial decision-making: examining preferences for causal and effectual logics in the early stage of new ventures

The influence of entrepreneurs’ career motives is examined on two alternative modes of decision-making logic; causation and effectuation. Based on Sarasvathy’s (Acad Manage Rev 26(2):243–288, 2001) seminal study, causation is defined as a decision-making process that focuses on what ought to be done given predetermined goals and possible means, and effectuation as a decision-making process emphasizing the question of what can be done given possible means and imagined ends. Analysis suggests that entrepreneurs who identify themselves with linear or expert career motives have a higher preference for causal decision-making logic. Entrepreneurs who identify themselves with spiral or transitory career motives have a higher preference for effectual decision-making logic. In addition, indications that prior start-up experience moderates the relationship between career motives and effectual decision-making logic for spiral-minded entrepreneurs is found. The overall results give ample support for the assumption that entrepreneurs’ career motives influence their decision-making.     

Panic buying in the COVID-19 pandemic: A multi-country examination

The global crisis of COVID-19 pandemic has ravaged the world economy and healthcare, igniting much fear, panic, and uncertainty among billions of people. As lockdowns being implemented in many places, panic buying has emerged as a reliable feature of the Coronavirus outbreak. Therefore, it is of urgent needs to examine consumers' panic buying behaviors during COVID-19 to gain a better understanding of the phenomenon and to provide managerial insights for policy-makers and marketers alike. In this study, under the theoretical guidelines of the Stimuli-Organism-Response model and the Competitive Arousal model, we investigate how in the panic situation created by the pandemic, external stimuli such as Limited Quantity Scarcity (LQS) and Limited Time Scarcity (LTS) affect the emotional arousal among people, which in turn influences consumers’ impulsive and obsessive buying behaviors. This study is conducted in a multi-country setting including the U.S., China, India, and Pakistan. Online surveys were conducted during the peak time of pandemic. Our findings show that LQS and LTS significantly increase perceived arousal in consumers, which further leads to more impulsive and obsessive buying. In addition, our results also reveal that excessive social media use intensifies the relationship between scarcity messages and perceived arousal whereas the urge to buy impulsively moderates the relationship between perceived arousal and behavioral outcomes in all selected countries except for India. Theoretical and managerial implications are discussed in details.     

Corporate effectuation: Entrepreneurial action and its impact on R&D project performance

Innovative products are widely recognized as an important source of competitive advantage. However, many companies have difficulties finding efficient and successful approaches to different types of R&D projects, particularly those that involve a high level of innovativeness. Therefore, the present study moves effectuation theory from the entrepreneurial context to R&D research. First, the characteristics of an effectual approach in the context of R&D projects are developed and differentiated from those of conventional prediction-based strategies (causation). Second, using a thorough qualitative and quantitative scale-development process to capture particularities of effectual and causal dimensions in the R&D context, expert interviews and a pilot study (123 R&D projects), the study develops a multi-factor measurement model of effectuation and causation. These measures are validated in a follow-up study with a larger sample of 400 projects. Third, the new measures are applied to test two central hypotheses: (a) effectuation is positively related to success in highly innovative contexts, (b) causation approaches are beneficial in projects with low levels of innovativeness. Overall, this study moves the effectuation logic from the entrepreneurial to the corporate R&D context, captures its particularities, and investigates its performance outcomes.