Skip to main content
SpringerLink
Log in

Without judgment: An empirically-based entrepreneurial theory of the firm

  • Published:
The Review of Austrian Economics Aims and scope Submit manuscript

Abstract

Austrian ideas about the firm have grown rather naturally out of the central body of Austrian thought with its focus on entrepreneurship, subjectivism and market processes. In this paper we critically evaluate some Austrian ideas on the firm, with particular attention to the concept of entrepreneurial judgment. We then describe recent empirical work in entrepreneurship that has identified key elements of what might reside inside the “black box” of entrepreneurial decision making. We conclude that expertise in this type of decision making embodies procedural knowledge that is adaptive in the absence of substantive knowledge, i.e. without judgment.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1

Similar content being viewed by others

Notes

  1. However, see Foss and Foss 2006 for a more skeptical view of these ‘solutions’.

References

  • Adaman, F., & Devine, P. (2002). A reconsideration of the theory of entrepreneurship: A participatory approach. Review of Political Economy, 14(3), 329–355.

    Article  Google Scholar 

  • Adelstein, R. (2005). Knowledge and power in the mechanical firm: Planning for profit in Austrian perspective. The Review of Austrian Economics, 18(1), 55–82.

    Article  Google Scholar 

  • Allison, G., & Zelikow, P. (1999). Essence of decision. New York: Longman.

  • Alvarez, S. A., & Barney, J. B. (2005). How do entrepreneurs organize firms under conditions of uncertainty? Journal of Management.

  • Basalla, G. (1988). The Evolution of Technology. Cambridge: Cambridge University Press.

    Google Scholar 

  • Boudreaux, D. J., & Holcombe, R. G. (1989). The Coasian and Knightian theories of the firm. Managerial and Decision Economics, 10, 147–154.

    Article  Google Scholar 

  • Brettel, M., Mauer, R., Engelen, A., & Kuepper, D. (2011). Corporate effectuation: Entrepreneurial action and its impact on R&D project performance. Journal of Business Venturing. doi:10.1016/j.jbusvent.2011.01.001.

  • Buchanan, J. M., & Vanburg, V. J. (1990). “The Market as a Creative Process.” Economics and Philosophy, 7, 167–186.

  • Camerer, C., & Lovallo, D. (1999). Overconfidence and excess entry: An experimental approach. American Economic Review, 89(1), 306–318.

    Article  Google Scholar 

  • Casson, M. C. (1982). The entrepreneur: An economic theory. Oxford: Martin Robertson.

    Google Scholar 

  • Casson, M. C., & Wadeson, N. (2006). The discovery of opportunities: Extending the economic theory of the entrepreneur. Working paper.

  • Casson, M. C. (2005a). Entrepreneurship and the theory of the firm. Journal of Economic Behavior and Organization, 58, 327–348.

    Article  Google Scholar 

  • Casson, M. (2005b) Entrepreneurship. In The concise encyclopedia of economics, the library of economics and liberty.

  • Cattani, G. (2006). Technological pre-adaptation, speciation, and emergence of new technologies: How corning invented and developed fiber optics. Industrial and Corporate Change, 15(2), 285–318.

    Article  Google Scholar 

  • Chiles, T. F., Bluedorn, A. C., & Gupta, V. K. (2007). Beyond creative destruction and entrepreneurial discovery: A radical Austrian approach to entrepreneurship. Organization Studies, 28(4), 467–493.

    Article  Google Scholar 

  • Cyert, R. M., & March, J. G. (1963). A Behavioral Theory of the Firm. Prentice-Hall, Englewood Cliffs, NJ.

  • Daft, R. L. & Weick, K. E. (1984). Toward a model of organizations as interpretation systems. The academy of management review Vol. 9, No. 2 (Apr., 1984), pp. 284–295.

  • D’Antonio, M. (2006). Hershey: Milton S. Hershey’s extraordinary life of wealth, empire, and utopian dreams.

  • Dew, N. (2003). Lipsticks and razorblades: How the auto ID center used pre-commitments to build the internet of things, dissertation. Charlottesville: University of Virginia.

    Google Scholar 

  • Dew, N., Sarasvathy, S. D., & Venkataraman, S. (2004). The economic implications of exaptation. Journal of Evolutionary Economics, 14(1), 69–84.

    Article  Google Scholar 

  • Dew, N., Read, S., Sarasvathy, S. D., & Wiltbank, R. (2009a). Logical frames in entrepreneurial decision making: Differences between experts and novices. Journal of Business Venturing, 24(4), 287–309.

    Article  Google Scholar 

  • Dew, N., Sarasvathy, S. D., Read, S., & Wiltbank, R. (2009b). Affordable loss: Behavioral economic aspects of the plunge decision. Strategic Entrepreneurship Journal, 3(2), 105–126.

    Article  Google Scholar 

  • Dulbeccol, P., & Garrouste, P. (1999). Towards an Austrian theory of the firm. The Review of Austrian Economics, 12(1), 43–64.

    Article  Google Scholar 

  • Feldman, M. S., & Pentland, B. T. (2003). Reconceptualizing organizational routines as a source of flexibility and change. Administrative Science Quarterly, 48(1), 94–118.

    Article  Google Scholar 

  • Felin, T., & Foss, N. J. (2002). Organizational routines: A sceptical look. DRUID Working Paper No 04–13.

  • Fischer, E., & Reuber, A. R. (2011). Social interaction via new social media: (How) can interactions on Twitter affect effectual thinking and behavior? Journal of Business Venturing, 26(1), 1–18.

    Article  Google Scholar 

  • Foss, N. J. (1994). The theory of the firm: The Austrians as precursors and critics of contemporary theory. Review of Austrian Economics, 7(1), 31–65.

    Article  Google Scholar 

  • Foss, N. J. (1997). Austrian insights and the theory of the firm. Advances in Austrian Economics, 4, 175–198.

    Article  Google Scholar 

  • Foss, N. J. (2001). Leadership, coordination, and beliefs. Industrial and Corporate Change Change.

  • Foss, N. J. (2003). Selective intervention and internal hybrids: Interpreting and learning from the rise and decline of the Oticon spaghetti organization. Organization Science, 14(3), 331–349.

    Article  Google Scholar 

  • Foss, N. J., & Christensen, J. F. (2001). A market-process approach to corporate coherence. Managerial and Decision Economics, 22(4–5), 213–226.

    Article  Google Scholar 

  • Foss, N. J., & Foss, K. (2006). The limits to designed orders: Authority under “distributed knowledge” conditions. Review of Austrian Economics, 19(4), 261–274.

    Article  Google Scholar 

  • Foss, K., Foss, N. J., Klein, P. G., & Klein, S. K. (2002). Heterogeneous capital, entrepreneurship, and economic organization. Journal des Economistes et des Etudes Humaines, 12(1), 79–96.

    Article  Google Scholar 

  • Foss, K., Foss, N. J., Klein, P. G., & Klein, S. K. (2007a). The entrepreneurial organization of heterogeneous capital. Journal of Management Studies, 44(7), 1165–1186.

    Article  Google Scholar 

  • Foss, K., Foss, N. J., & Klein, P. G. (2007b). Original and derived judgment: An entrepreneurial theory of economic organization. Organization Studies, 28(12), 1893–1912.

    Article  Google Scholar 

  • Foss, N. J., & Klein, P. (Eds.). (2001). Entrepreneurship and the firm: Austrian perspectives on economic organization. Aldershot: Edward Elgar.

    Google Scholar 

  • Foss, N. J., & Klein, P. G. (Eds.). (2002). Entrepreneurship and the firm: Austrian perspectives on economic organization. Aldershott: Edward Elgar.

    Google Scholar 

  • Foss, N. J., & Klein, P. G. (2005). Entrepreneurship and the economic theory of the firm: Any gains from trade? In R. Agarwal, S. A. Alvarez, & O. Sorenson (Eds.), Handbook of entrepreneurship: Disciplinary perspectives. Norwell: Kluwer.

    Google Scholar 

  • Foss, N. J., & Klein, P. G. (2008). Entrepreneurship: From opportunity discovery to judgment. Center for strategic management and globalization, Copenhagen business school. SMG Working Paper No. 5/2008.

  • Foss, N. J., Klein, P. G., Kor, Y. Y., & Mahoney, J. T. (2008). Entrepreneurship, subjectivism, and the resource-based view: Toward a new synthesis. Strategic Entrepreneurship Journal, 2(1), 73–94.

    Article  Google Scholar 

  • Foss, N. J., & Ishikawa, I. (2007). Towards a dynamic resource-based view: insights from Austrian capital and entrepreneurship theory. Organization Studies, 28(5), 749–772.

    Article  Google Scholar 

  • Gould, S. J., & Vrba, E. S. (1982). Exaptation—a missing term in the science of form. Paleobiology, 8(1), 4–15.

    Google Scholar 

  • Grossman, S. J., & Hart, O. D. (1986). The costs and benefits of ownership: A the-ory of vertical and lateral integration. Journal of Political Economy, 94, 691–719.

    Article  Google Scholar 

  • Guth, W. D., & Ginsberg, A. (1990). Guest editors’ introduction: Corporate entrepreneurship. Strategic Management Journal, 11, 5–15.

    Google Scholar 

  • Harmeling, S. S., & Sarasvathy, S. D. (2011). When contingency is a resource: Educating entrepreneurs in the Balkans, the Bronx, and beyond. Entrepreneurship Theory and Practice. doi:10.1111/j.1540-6520.2011.00489.x.

  • Hart, O. D., & Moore, J. (1990). Property rights and the nature of the firm. Journal of Political Economy, 98(6), 1119–1158.

    Article  Google Scholar 

  • Hayek, F. A. (1978). Competition as a discovery procedure. In C. Nishiyama & K. Leube (Eds.), The essence of hayek: 257. Stanford: Stanford University Press.

  • Hayek, F. A. (1944). The road to serfdom. University of Chicago Press.

  • Hayek, F. A. (1960). The constitution of liberty. University of Chicago Press, Chicago.

  • Hayek, F. A. (1945). The use of knowledge in society. American Economic Review, 35(4), 519–530.

    Google Scholar 

  • Ioannides, S. (1999). Towards an Austrian perspective on the firm. Volume. Review of Austrian Economics, 11(1–2), 77–97.

    Article  Google Scholar 

  • Ioannides, S. (2003). Orders and organizations: Hayekian insights for a theory of economic organization. American Journal of Economics and Sociology, 62(3), 533–566.

    Article  Google Scholar 

  • Kahneman, D., & Tversky, A. (1979). Prospect theory: An analysis of decision under risk. Econometrica, 47(2), 263–292.

    Article  Google Scholar 

  • Kapás, J. (2003). An attempt to create a multidimensional theory of the firm. Acta Oeconomica, 53(2), 145–173.

    Article  Google Scholar 

  • Kirzner, I. M. (1996). Essays on capital and interest: An Austrian perspective. Brookfield: Edward Elgar.

    Google Scholar 

  • Kirzner, I. M. (1966). An essay on capital. New York: Augustus M. Kelley.

    Google Scholar 

  • Kirzner, I. M. (1973). Competition and entrepreneurship. Chicago: University of Chicago Press.

    Google Scholar 

  • Klein, P. G. (2008). Opportunity discovery, entrepreneurial action, and economic organization. Strategic Entrepreneurship Journal, 2(3), 175–190.

    Article  Google Scholar 

  • Knight, F. H. (1921/1957). Risk, Uncertainty and Profit. Houghton Mifflin: New York.

  • Kuratko, D. F., Montagno, R. V., Hornsby, J. S. (1990). Developing an intrapreneurial assessment instrument for an effective corporate entrepreneurial environment. Strategic Management Journal 11(5), 49–58, John Wiley and Sons.

    Google Scholar 

  • Lachmann, L. M. (1956). The Structure of Capital. Kansas City: Sheed, Andrews and McMeel.

    Google Scholar 

  • Lachmann, L. W. (1976). From Mises to Shackle: An Essay on Austrian Economics and the Kaleidic Society. Journal of Economic Literature Vol. 14, No. 1 (Mar., 1976), pp. 54–62.

  • Lachmann, L. M. (1977). Capital, expectations and the market process. Kansas City: Sheed, Andrews, McMeel.

    Google Scholar 

  • Landier, A. (2005). Entrepreneurship and the stigma of failure. New York: Stern School of Business. Working paper.

    Google Scholar 

  • Langlois, R. N. (2002). Kirznerian entrepreneurship and the nature of the firm. Journal des Economistes et des Etudes Humaines, 12(1).

  • Langlois, R. N. (2005a). Why do entrepreneurial firms exist? Working paper, University of Connecticut.

  • Langlois, R. N. (2005b). The entrepreneurial theory of the firm and the theory of the entrepreneurial firm. Journal of Management Studies, 44, 1107–1124.

    Article  Google Scholar 

  • Langlois, R. N., & Cosgel, M. M. (1993). Frank knight on risk, uncertainty, and the firm: A new interpretation. Economic Inquiry 31(3), 456–465

    Google Scholar 

  • Lewin, P. 2005. The firm in disequilibrium. Working paper.

  • Lewin, P., & Baetjer, H. (2011). The capital-based view of the firm. The Review of Austrian Economics, 24(4), 335–354.

    Article  Google Scholar 

  • Lewin, P., & Phelan, S. E. (2000). An Austrian theory of the firm. Review of Austrian Economics, 13(1), 59–79.

    Article  Google Scholar 

  • Liedtka, J., Rosen, R., Rosen, R. H., & Wiltbank, R. (2009). The catalyst: How you can become an extraordinary growth leader. Crown Business Press.

  • Loasby, B. J. (1991). Equilibrium and Evolution: An Exploration of Connecting Principles in Economics. Manchester U Press

  • Loasby, B. J. (2004). Entrepreneurship, evolution and the human mind. Working paper.

  • Mathews, J. A. (2006). Ricardian rents or Knightian profits? More on Austrian insights on strategic organization. Strategic Organization, 4(1), 97–108.

    Article  Google Scholar 

  • McMullen, J. S., & Shepherd, D. A. (2006). Entrepreneurial action and the role of uncertainty in the theory of the entrepreneur. Academy of Management Review, 31(1), 132–152.

    Article  Google Scholar 

  • Minkler, A. P. (1993). The problem with dispersed knowledge: firms in theory and practice. Kyklos, 46(4), 569–587.

    Article  Google Scholar 

  • Mintzberg, H. (1994). The rise and fall of strategic planning. New York: Free Press.

  • von Mises, L. (1949). Human action: A treatise on economics. New Haven: Yale University Press.

    Google Scholar 

  • Mokyr, J. (1990). The lever of riches: Technological creativity and economic progress. New York: Oxford University Press.

    Google Scholar 

  • Nelson, R. R., & Winter, S. G. (1982). An evolutionary theory of economic change. Cambridge: Belknap Press of Harvard University Press.

    Google Scholar 

  • Nesbitt, R. and Ross, L., 1980. Human inference: Strategies and shortcomings of social judgment, New Jersey Englewood-Cliffs.

  • Penrose, E. (1959). The theory of the growth of the firm. New York: Wiley.

    Google Scholar 

  • Read, S., Dew, N., Sarasvathy, S. D., Song, M., & Wiltbank, R. (2009). Marketing under uncertainty: The logic of an effectual approach. Journal of Marketing, 73(3), 1–18.

    Article  Google Scholar 

  • Roberts, P. W., & Eisenhardt, K. M. (2003). Austrian insights on strategic organization: From market insights to implications for firms. Strategic Organization, 1(3), 345–352.

    Article  Google Scholar 

  • Rosenberg, N. (1996). Uncertainty and technological change. In J. C. Fuhrer & J. Sneddon Little (Eds.), Technology and growth: Conference Series No. 40. Boston: Federal Reserve Bank of Boston.

    Google Scholar 

  • Rothbard, M. N. (1962). Man, economy, and state. Princeton: Van Nostrand.

    Google Scholar 

  • Sah, R. K. (1991). Fallibility in human organizations and political systems. The Journal of Economic Perspectives Vol. 5, No. 2 (Spring, 1991), pp. 67–8.

  • Sarasvathy, S. D. (1998). How do firms come to be? Towards a theory of the prefirm, Dissertation. Pittsburgh: Carnegie Mellon University.

    Google Scholar 

  • Sarasvathy, S. D. (2001). Causation and effectuation: Toward a theoretical shift from economic inevitability to entrepreneurial contingency. Academy of Management Review, 26(2), 243–263.

    Google Scholar 

  • Sarasvathy, S. D. (2008). Effectuation: Elements of entrepreneurial expertise. Cheltenham: Edward Elgar.

    Google Scholar 

  • Sarasvathy, S. D., & Dew, N. (2005). New market creation through transformation. Journal of Evolutionary Economics, 15, 533–565.

    Article  Google Scholar 

  • Sarasvathy, S. D., Dew, N., Velamuri, S. R., & Venkataraman, S. (2003). “Three Views of Entrepreneurial Opportunity.” In the Handbook of Entrepreneurship Research, Acs Z. J. & Audretsch, D. B. (Eds.). Berlin: Springer 141–160.

  • Sautet, F., & Foss, N. J. (1998). The organization of large complex firms. DRUID working paper.

  • Sautet, F. (2000). An entrepreneurial theory of the firm. London: Routledge.

    Book  Google Scholar 

  • Schumpeter, J. A. (1934). The theory of economic development. Cambridge: Harvard University Press.

    Google Scholar 

  • Sen, A. (1999). The possibility of social choice. The American Economic Review, 89(3), 349–378.

    Article  Google Scholar 

  • Shackle, G. L. S. (1979). Imagination and the Nature of Choice. Edinbrugh University Press.

  • Shane, S., & Venkataraman, S. (2000). The promise of entrepreneurship as a field of research. The Academy of Management Review, 25(1), 217–226.

    Google Scholar 

  • Simon, H. A. (1947). Administrative behavior. Cambridge University Press.

  • Simon, H. A. (1978). Rationality as process and as product of thought. American Economic Review 68(2), 1–16.

    Google Scholar 

  • Sutton, R. I., & Hargadon, A. (1996). Brainstorming groups in context: Effectiveness in a product design firm. Administrative Science Quarterly, 41(4), 685–718.

    Article  Google Scholar 

  • Tetlock, P. (2006). Expert political judgment. Princeton: Princeton University Press.

    Google Scholar 

  • Tsoukas, H. (1996). The firm as a distributed knowledge system: A constructionist approach. Strategic Management Journal, Vol., 17, 11–25.

    Google Scholar 

  • Vihanto, M. (1992). Contracting costs and entrepreneurial discovery. In Discovering a good society through evolution and design: Studies in austrian economics. Turku: Publications of the Turku School of Economics and Business Administration.

  • Wiltbank, R., Dew N., Sarasvathy, S. D., & Read, S. (2006). What to do next? The case for non-predictive strategies. Strategic Management Journal.

  • Wiltbank, R., Read, S., Dew, N., & Sarasvathy, S. D. (2009). Prediction and control under uncertainty: Strategy in new venture investing. Journal of Business Venturing, 24(2), 116–133.

    Article  Google Scholar 

  • Witt, U. (1999). Do entrepreneurs need firms? A contribution to a missing chapter in Austrian economics. Review of Austrian Economics, 11(1–2), 99–109.

    Article  Google Scholar 

  • Witt, U. (1998a). Imagination and leadership: The neglected dimension of an evolutionary theory of the firm. Journal of Economic Behavior and Organization, 35, 161–177.

    Article  Google Scholar 

  • Witt, U. (1998b). Do entrepreneurs need firms? Review of Austrian Economics, 11, 99–109.

    Article  Google Scholar 

  • Witt, U. (2003). Market opportunity and organizational grind: the two sides of entrepreneurship. Advances in Austrian Economics.

  • Witt, U. (2007). Firms as realizations of entrepreneurial visions. Journal of Management Studies, 44(7), 1125–1140.

    Article  Google Scholar 

  • Yu, T. L. (1999). Toward a praxeological theory of the firm. Review of Austrian Economics.

Download references

Acknowledgments

We would like to thank the Batten Institute at the Darden Graduate Business School, University of Virginia for funding this study. We would also like to thank Stuart Read, Robert Wiltbank, Jim March, Jay Barney, Pete Boettke, Frederic Sautet, Peter Klein and Nicolai Foss for their conversation in shaping the ideas in this manuscript.

Author information

Authors and Affiliations

  1. Darden Graduate School of Business Administration, University of Virginia, PO Box 6550, Charlottesville, VA, 22906, USA

    Saras D. Sarasvathy

  2. Naval Postgraduate School, 1 University Circle, Monterey, CA, 93943, USA

    Nicholas Dew

Authors
  1. Saras D. Sarasvathy
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Nicholas Dew
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Saras D. Sarasvathy.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Sarasvathy, S.D., Dew, N. Without judgment: An empirically-based entrepreneurial theory of the firm. Rev Austrian Econ 26, 277–296 (2013). https://doi.org/10.1007/s11138-011-0170-4

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11138-011-0170-4

Keywords

Search

Navigation