Through the Looking Glass
of
Entrepreneurial Cognition & Complexity
...And How Cognitive Framing Derives Better Decisions
Sherif Mamdouh Ali Zaazaa
11146303
June 23, 2016 - Final Draft
MSc. in Business Administration – Entrepreneurship & Innovation Track
Amsterdam Business School, University of Amsterdam
Statement of Originality
This document is written by Sherif Zaazaa who declares to take full responsibility for the contents of this document.
I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.
The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
Table of Contents
Abstract p. 4
Introduction p. 5
1. Section One
Cognitive Processes and Entrepreneurship p. 7
1.1 The Inseparability of Process & Content p. 8
1.2 Between the Intuited and Reasoned p. 15
1.3 Dual Process and Entrepreneurial Reasoning Faculties p. 21
1.4 Cognitive Representations and Entrepreneurship p. 29
2. Section Two
Emergence through Entrepreneurship p. 37
2.1 Nature of Complex Systems p. 39
2.2 Entrepreneurial Emergence p. 41
2.3 Emergence and Entrepreneurial Uncertainty p. 46
2.4 Emergence as a product of Entrepreneurial Cognition p. 49
3. Section Three Methodology p. 53 Theoretical Propositions p. 58 4. Section Four Discussion p. 72 Conclusion p. 83 References p. 87 Annex p. 91
Acknowledgements
I would like to express my warm gratitude to the Lutfia Rabbani Foundation for their support in enabling this work, particularly Salim Rabbani, Willemijn Hirzalla and Yonet Schroder. Without their support, this work would not have happened.
Abstract
The work presented here attempts to explore the intimate relationship between cognitive psychology, entrepreneurship and emergence. This relationship illustrates how different cognitive processes are more adaptive to the entrepreneurial decision-making process in relation to the complexity of the environment. The paper begs the question whether a change of cognitive representations of an entrepreneur’s environment would in fact develop improved decision-making processes. In doing so, it hopes to identify a systematic approach to entrepreneurial decision-making. The ideas and propositions within this work are developed through a dialectical approach, building upon existing theories and empirical research within the disciplines of cognitive psychology, entrepreneurship and complexity science, to expound how a sound understanding of subjective perception could indeed be one key to unraveling the
Introduction
In the quest for meaning, we often unveil new ways of explaining old ideas. Sometimes we deconstruct the old and imagine anew. Other times this journey could lead us to bridge different fields so that a better understanding of the whole and how it relates could be achieved. Between this and that, lies the premise of this work.
Perhaps this is where this work starts, and identifiably where it ends; creating links, identifying patterns and formulating propositions in the vein of changing monolithic ideas that shadow other possibilities of understanding from taking form. Carl Jung famously said, we spend half our lives learning, and the other half unlearning what we learnt. The logic presented in this work wishes to unlearn conventional ways of observation, and learn anew. At the least, it hopes to open up the imagination for new possibilities of thinking, that may in fact lead to better understandings, and inform better decisions.
At its core, this work explores the relationship between cognitive psychology and
entrepreneurship, as it attempts to dig beyond superficial determinations for traits and methods that could determine entrepreneurial success, and into the entrepreneur’s mind to identify how subjective perception affects the formation of problem spaces and the alternatives generated from this. The work aligns itself with ideas echoed by Herbert Simon, Henry Mintzberg, Charles R. Schwenk and Sarah Sarasvathy, in that the subjective perception and resultant cognitive mapping or schemata could be key to developing a systematic process to successful entrepreneurial decision-making.
The nature of this work takes on a dialectical approach in developing an argument towards its propositions. It builds upon existing theories and research to elucidate on how the marriage of the ideas presented could lead to a formative understanding of entrepreneurial success. As for the substance of the argument being made, How do cognitive processes affect entrepreneurial
decision-making? and do some cognitive processes fair better than others according to
context?, the first section explores how these processes are formed, and the question of process-content inseparability. Following suite, the work aligns these cognitive processes with entrepreneurial reasoning faculties, and details the relevance of cognitive representations, perception and attention to the entrepreneurial decision-making process.
The second section introduces a burgeoning reality, observed through the lens of complexity and emergence, shaped to a large part by the work of Austrian economist Friedrich Hayek. This section highlights the practical relevance of this to entrepreneurial decision-making and
crystallizes the ideas explored in section one. It ends by showing the manifest relationship between cognition, entrepreneurship and emergence.
Based on the literature review and desk research, several propositions would be made to
advocate how some cognitive faculties employed by the entrepreneur would be more adapted to decision-making within a complex environment.
Section One
Cognitive Processes and Entrepreneurship
The first section focuses on the relationship between cognition and entrepreneurship, to illustrate how the development of an individual’s cognitive and perceptive faculties are shaped by the understanding they form of their environment and their observed relationship to it. This formative process shapes how the entrepreneur perceives the world around him, to the extent that what he thinks forms his experiences of the world, rather than the other way around.
To illuminate this understanding of the inseparability of process and content, and develop its foundational relationship to entrepreneurial cognitive processes, the work explores recent research that emphasizes origins of differences in cognition, perception and attention through comparing East Asian and Western societies. This aims is to show how perception and
cognitive processes develop based on the entrepreneur’s understanding of and relationship to his environment, and how this in turn would reflect upon his cognitive representations of said environment.
Though the roots of the mind’s nature can be traced back to Plato and later on Descartes’ dualism, cognitive psychology took form as a scientific discipline in the mid-19th century. More recent work such as Kohler’s Gestalt theory on structuralism and Piaget’s stages of mental development, to Skinner’s Reinforcement Theory and Chomsky’s Logical Structure of Linguistics Theory, have been speculating and theorizing about the complex nature and development the mind. Some of this literature has been directed towards the economic and business domains to study the relationship between cognition and decision-making, relevant to this work is the dual process theory, introduced by psychologist William James and expanded upon recently by Daniel Kahneman.
Though a striking feature of some of the work to come out of schools of Western psychology has been a circumscribed focus of studies that were limited to individuals from Western countries exhibiting the WEIRD phenomena - Western, Educated, Industrialized, Rich, and Democratic societies (Machery, 2010). These studies have, nonetheless, assumed a universality to their work, while not taking into consideration the cultural, ethnic, and philosophical inclinations that different societies assume and the effect this may have on cognitive development. As such, some of the work could have more of an ethnographic approach to it (Nisbett, et al., 2001), as opposed to an encompassing nature of different cognitions across cultural spectrums.
In reaction to this, recent research has come to highlight the effect of cultural differences on cognition, perception and attention, a juxtaposition that has exhibited most notable differences between the cultures of East Asia and those of the West (Cousins; 1989; Ji, et al., 2000; Lehman, et al., 2004; Markus & Kitayama, 1991; Masuda & Kitayama 2004; Nisbett, et al.,
2001). Nisbett, et al. had hypothesized on the origins of these differences, tracing them back to Ancient China and Ancient Greece, arguing for the possibility of deriving intellectual differences between both cultures based on their approach to science and philosophy, from their differing social psychological attributes.
In any case, this demarcation still holds with observable differences between East Asian and Western cultures (for a comprehensive review, refer to Nisbett, et al., 2001), a result of which has been the consideration that people in different cultures have strikingly different construals of the self (Markus & Kitayama, 1991) as do the relationships that bind them with their
environment (Ji, et al., 2000; Nisbett, et al., 2001). This has been shown to influence the very nature of the individual’s experience, as well as the cognitive processes they develop as a product of it. Literature has identified possible reasons behind some of these sustained
differences between cultures, such as Easterners being more inclined to use argument debate, versus rhetoric that is used more by Westerners (Nisbett, et al., 2001). Western religions usually insist on doctrinal purity, while the former interprets and blends different aspects of religions through a continuation and expansion of beliefs. Though the most pervasive aspect that has to do with sustaining these differences could probably be associated with writing and language (Logan, 1986). As far as this argument could be explicated, its kernel could be crystallized through the inseparability of process and content.
Content Shaping Process, Shaping Content
The understanding one develops of the world is based on their knowledge of it. An individual who grows up with the understanding that their existence compliments the world, will tend to
observe the network of relationships tying them to the environment, and the relations between objects and the environment. What an individual is taught of the world explicitly through formal education, culture, upbringing and implicitly through tacit epistemologies develops the basis for how he perceives himself in relation to it. Social organization is partly responsible for this perception; be it as part of the larger whole, connected and interdependent on the dynamics of its relations, or as an individual that is capable of decontextualization from that whole, that is in essence perceived as independent of the larger whole (Ji, et al., 2000; Markus & Kitayama, 1991; Nisbett, et al., 2001).
A growing body of work (Ji, et al., 2000; Markus & Kitayama, 1991; Nisbett, et al., 2001) has observed that the content of one’s thought, affects the development of the process through which they think, as such calling into question long held assumptions by Western schools of psychology about the comprehensiveness of the discipline with regard to human cognition (Nisbett, et al., 2001). Literature contrasting the cognitive processes of East Asian to Western cultures amounts to illustrating how the difference in content from cultural backgrounds affects the information processing nurtured within it. Research has demonstrated qualitative differences between East Asians and Americans in how they respond to the same question, underlying not only a cultural bias of approach, but a deeper level of cognitive operability (Ji, et al., 2000; Nisbett, et al., 2001). This line of thought would tenably argue against the appropriateness of a content-process distinction. In other words, the selective content intake guided by culture, schooling, upbringing, among other factors, affects and develops the processing of this content, and in doing so, influences the perceptual selectivity through attention of what other content to process from the environment.
Studies have shown that the sustained cognitive variances between East Asians and
Westerners are manifest through qualitatively different thought processes to the same stimulus situation, indicating that “literally different cognitive processes are often invoked by East Asians and Westerners dealing with the same problem.” (Nisbett, et al., 2001). Quoting Resnick (1994), Nisbett, et al. refer to this view as “situated cognition” holding the assumption that, “the tools of thought...embody a culture’s intellectual history… Tools have theories built into them, and users accept these theories - albeit unknowingly- when they use these tools.” Hoffman (1990) holds a similar view, explaining that the terms in which the world is understood is a product of social artifacts and historically situated interchanges among people. An understanding of the world is “the result of an active, cooperative enterprise of persons in relationship”.
Since these differences lay the foundation for the development of an individual’s cognitive processes, perception and attention (Nisbett, et al., 2001; Miyamoto, et al., 2006), then the understanding an individual develops of his environment (and the perceived relationship with it) directs one’s attention on different parts of the environment to seek information within it.
To illustrate how these differences may affect subjective perception, the work contrasts East Asian & Western cognitive processes to delineate the main differences in thought processes. This comparison is relevant to the work as it develops the groundwork for the alignment with entrepreneurial concepts to follow.
Contextual Cognitive Differences
An individual’s perception of themselves as part of a larger whole, as is more common within East Asian cultures, would determine their understanding of how this world operates. This perception of interdependency would channel the person’s attention more towards interpreting the dynamics of relationships among different objects in the field, as well as events in terms of the relationships between the object and the field (Nisbett, et al., 2001). Empirical research by Ji, et al. (2000) has shown how East Asians when solving a problem tend to focus their attention to relationships in the field compared to Western participants. Seeing how the East Asian
individual perceives the relations and events as determinate factors in explaining outcomes, then it would be necessary to focus their attention to all relevant parties in the field and the relationships between them, in order to reason them. The world’s natural order would appear as “continuous and interpenetrating to people who view themselves as part of a larger whole” (Nisbett, et al., 2001).
Conversely, an individual who perceives their relation to the world as one that is independent of the field, arbitrated through fewer social relations and more control over the situation, as is the case of individualism in Western societies, then one would expect them to channel their attention more on the abstract rules that are thought to govern the relationship between the subject and object. In doing so, the object’s properties become salient, encouraging one to use these properties to “develop categories and rules that presumably govern the object’s behavior” (Nisbett, et al., 2001). The more one perceives themselves to comprehend the rules that govern the subject-object relationship’s behavior, the more they would be encouraged to focus their
attention exclusively on the object itself, and the more they would be made to believe that the object’s behaviour is controllable through this comprehension (Ji, et al., 2000; Langer, 1975; Nisbett, et al., 2001; Schwenk, 1988). Contrary to East Asian thought, one would expect a Western individual’s inference to be formed through decontextualizing the object in order to apply said rules to categories, in fact, “it is crucial to be able to isolate the object from its context, to infer category membership of the object from its properties, and to infer how rules apply to categories” (Nisbett, et al., 2001).
This selective choosing of where to channel the limited resource of one’s attention - attributed to the the mind’s finite computational capacity (Simon, 1959; 1972), develops perceptual habits of thought. Part of this reason lies in how individuals from different cultures view causal theories: East Asians ascribe more weight to the context or field than Americans do, ascribing to holistic theories of behaviour (Choi, et al., 1999) . As a result, research has shown that Eastern
individuals develop perceptual habits such as deep processing of the environment and
covariation-detection skills (Ji, et al., 2000), as well as cognitive habits that explain events with reference to the field (Nisbett et al., 2001). On the other hand, Americans depend more on an analytic cognitive approach, and are inclined to separate the object from its environment. Hence, they would be expected to be better at understanding the rules and categories which govern the subject-object relationship (Nisbett, et al., 2001). (For further account on these differences, relevant excerpts from Nisbett, et al., [2001] have been listed in Table I of the Annex.) Further research has revealed how when approaching the same problem, Americans tend to rely on abstract rules through decontextualization, while Easterners tend to the field to understand the context within which the problem lays (Choi, et al., 1999; Masuda and Kitayama, 2004; Miyamoto and Kitayama, 2002; Morris and Peng, 1994; Norenzayan, et al., 2002).
These contrasting representations of the same problem cast light on how differences in
comprehension develop varying perceptions of the individual’s relationship to the environment. In a similar fashion, it would be expected that the content an entrepreneur is exposed to, would affect his cognitive processes and faculties. These habits would go on to form the
representation he holds of his environment, and, as a result, how he approaches and frames problems. This difference in perception may in fact lead to a set of different alternatives to be generated and selected from. Work by Simon, Sarasvathy and Lave (1998) explicate a similar argument through comparing the difference between how entrepreneurs and bankers frame their problems, and the resulting alternatives that are generated from each.
This understanding gives a fuller form to how exposure to different content does in fact affect the formative thought processes resulting from it. The above studies provide sufficient evidence that experiences can indeed influence the decision-maker’s subjective perception of the
environment around him, and as such, the cognitive processes resulting from it.
Moving forward, the work explores other literature expounding on the differences in cognitive processes, to determine their contextual relevance. After which, the similarities between these processes and entrepreneurship would be argued for.
The distinction made between east and west finds its resonance in cognitive psychology when comparing the different types of cognitive processes employed by a decision-maker (Buchtel & Norenzayan, 2009; Dane & Pratt, 2007). The work presented builds on and aligns these cognitive processes with their respective eastern and western faculties, following suite would connect them to entrepreneurial faculties. The purpose of this alignment is to show the different processes that an entrepreneur could employ, while reflecting upon his capacity to employ these according to context.
To start with, Sloman (1996) draws two broad divisions in types of thought processes between ‘Associative and Rule-based’. While the former type is labelled associative because its
computations reflect structures of “similarity, relationships and patterns of temporal contiguity”, the latter is rule-based because it operates on “symbolic structures that have a logical,
sequential content and variables, as well, its computations are bounded within or behave through properties that are normally assigned to rules”.
This division, Sloman explains, could be traced back to one of the oldest questions posed within psychology: Are people best conceived as operating parallel and networked processors of
information that function through associative links or as deliberate and sequential processors?
He says on this:
Such a dichotomy has its appeal: Associative thought feels like it arises from a different cognitive mechanism than does deliberate, analytical reasoning. Sometimes conclusions simply appear at some level of awareness, as if the mind goes off, does some work, and
then comes back with a result, and sometimes coming to a conclusion requires doing the work oneself, making an effort to construct a chain of reasoning. Given an arithmetic problem, such as figuring out change at the cash register, sometimes the answer springs to mind associatively, and sometimes a person has to do mental arithmetic by analyzing the amounts involved and operating on the resultant components as taught to do in school.
The division between these two forms of thought have been described in literature on cognitive psychology in other ways. Some authors see the underlying difference taking form as ‘reasoned’ versus ‘perceived and intuited’ shaping the roots for the dual process theories of Type I & II (Evans & Stanovich, 2013; Sloman, 1996). These two types of processing have been described by cultural psychologists as unevenly distributed across cultures, with analytic reasoning taking precedent in Western cultures, while associative thought is more dominant in East Asian cultures, suggesting that East Asian cultures may not encourage decontextualized thinking as much as Western cultures do, conversely, Western cultures do not encourage holistic,
dialectical thinking (Buchtel & Norenzayan, 2009). Literature on this matter takes several positions, from disagreeing all together with a dual-process theory at one end, to arguing for it and even associating a preference to Type II thought processes over Type I (Evans &
Stanovich, 2013; Sloman, 2007). Some advocates of dual process theory, such as Sloman, Evans and Stanovich, appear to at times denigrate Type I processing, while advancing Type II due to its more validating, rational and logical approach that aligns more with Western thought. This work aligns itself more with the moderate views adopted by Buchtel & Norenzayan (2009) and Dane & Pratt (2007) which debunk with supple evidence this partisan patronism.
At any rate, through literature covering the topic of dual process and Eastern versus Western thought, one could align these cognitive processes on both sides (Table II in the Annex presents the main literature reviewed on the subject). For the purpose of this work, thought processes have been divided between Associative, Relationship-based and Parallel processing (ARP) on one side, and Analytical, Rule-based and Sequential processing (ARS) on the other.
ARP Processing
Sloman (1996) refers to this type of thought process as one that is associative, where its computations reflect similarity and temporal structure, with typical cognitive functions including intuition. Dane and Pratt (2007) delved extensively into the topic of intuition in the vein to demystify it and explicate its utility when faced with unstructured decisions in complex
environments. Their work, as that of Simon (1995), explains intuition’s capacity as a cognitive faculty that is able to process large amounts of information nonconsciously, holistically, through associative means and at a faster rate - relative to ARS processing types. While Dane and Pratt’s work resonates Sloman’s definition of processing through deeply held patterns and categories, they disagree with notions held about the privilege of Type II over Type I processes. Buchtel & Norenzayan (2009) echo a similar sentiment when comparing and analyzing social and psychological faculties of East and West with cognitive processes of Type I and II. Although their work shows similarities between Type I and Type II to East and West, such as
contextualization and associative thinking versus decontextualization and rule-based thought, they disagree with notions of Eastern thought being more natural and automatic, or that Western thought is considered to be controlled and normative. This disagreement is manifest
when reviewing literature by Evans & Stanovich (2013), particularly in the latter’s views on Type II thought as a means to validate Type I.
While Evans & Stanovich (2013) make for compelling arguments on the conceptual validity of a dual-type cognitive process, their view that Type II processing possesses the more reflective (and higher-order) simulative aspect, compared to Type I thought, is a matter the author of this work does not align with (for more on this refer to Buchtel, 2009) and, on the contrary,
acknowledges how associative type processing holds the capacity of simulating complex cognitive maps (Dane & Pratt, 2007, Simon, 1995).
Similar understanding could be seen in work by Nisbett, et al., (2001), resonating how East Asian thought processes internalize the field within its cognitive process, while tending to be more holistic, attending to both the object and field, while assigning causality to it, elements of which are mirrored within Dane and Pratt’s work on intuition.
Some authors (Dane & Pratt and Evans) associate this type of thought with non-conscious processing and, as such, does not depend on conscious memory usage, giving it a superior capacity when compared with the limited memory capacity of conscious thought associated with ARS processing.
ARS Processing
On the other end, Sloman views this type of thought as symbolic, and its computations reflect a rule-structure, with typical attributes such as deliberation, formal analysis and verification.
Buchtel (2009) echoes similar notions on how this type of processing operates through abstract rules. While Dane and Pratt (2007) explain how individuals who engage this type of thought are deliberative in their learning and engage in analysis through an attentive manner. The latter determine that rational decision-making is highly dissimilar to intuition, for example, involving the use of systematic procedures designed to assess information while making a decision based on conscious deliberation. Due to its use of working memory, Evans & Stanovich (2013) underlie its correlates as slow, sequential thought and consequential decision-making. Nisbett, et al. (2001) echo similar views on Western type of thought as more analytic, paying attention primarily to the object and the categories to which it belongs, while using rules and formal logic to understand its behaviour, contrasting this to East Asians who make little use of categories and formal logic, and rely on dialectical reasoning.
The literature reviewed above argues that there is indeed a dual processing system that develops as a result of the context and content which the decision-maker is exposed to, or at the least, that individuals could process the same information in at least two ways depending on the subjects’ perception of and relationship to their environment. While some cultures could indeed depend on one type of thought over the other, this understanding should not
circumscribe the notion that individuals do not employ both faculties, albeit, at varying degrees, and would as a result exhibit more dependance on one over the other. Research that points to Westerners depending more on rule-based logic to perceive their environment does not imply that they do not also rely on an associative and experiential approach. Yet the lines of argument do observe Western logic to be more dominated by abstract rules which their perceptual
capacity works within, while East Asians depend less on abstract rules and more on direct experience and associative reflection. Literature shows that both types are integral to forming an
understanding of the environment, and the “idea that it is black or white,” as pointed by Delwar Hussain, an anthropologist at the University of Edinburgh, doesn’t work (Robson, 2017). Rather, due to the many historic connections between Eastern and Western cultures, and more
contemporary the growing globalization and connectivity of the world, it would be expected that individuals employ both ways of thought processes within different contexts at varying degrees. This would mean that an entrepreneur would employ more of one type of thought process over the other, based on their contextual understanding of a certain domain. If they perceive it to be more relationship-based, then they would be expected to employe more the associative, holistic type of thought, conversely, if a domain were perceived to be rule-based, then the entrepreneur would employ more analytical and rational processes to their conceptualization of its workings.
Having aligned the above processes, the work will funnel them towards relevant reasoning faculties in entrepreneurship, drawing on similarities that arise between them and the work of Sarasvathy (2001) on delineating effectuation from causation. While effectuations shares many similarities with ARP processes, causation appears to share those of ARS. The following section expands on these similarities.
1.3 Dual Process and Entrepreneurial Reasoning
The joined work of Herbert Simon and Sarah Sarasvathy has more often flirted with and encouraged a deeper analysis of the cognitive faculties that differentiate entrepreneurial logic from other forms of thought. The work presented here explores this notion further in an endeavour to align ARP processes with effectuation and causal thought with ARS processes.
Effectuation and ARP, Causation and ARS
Does effectual logic share similarities with ARP processes? And how does causal logic compare?
When explaining effectuation, Sarasvathy (2001) laid out the main pillars delineating
effectuation from causation - citing the latter as an inverse to it. Having related effectual logic to psychological factors in later work (2003), the work here will argue how the pillars of effectuation (leveraging contingencies, creating partnerships and being means-focused) share similarities with ARP processes, and how its inverse, causality, shares similarities with ARS processes.
More typical to effectuation is the emphasized focus on the environment to leverage contingencies as opposed to focusing on end-goals and the abstract rules governing the subject-object relationship, typical of causality. This emphasis resembles the East Asian’s dependence on the field, and how their cognitive processes develop perceptual habits such as deep processing of the environment and covariation-detection skills that would aide them in understanding the relationships within it. This focus on the field and perceiving oneself as part of the whole is also reflected through effectual thought in internalizing the environment within one’s decision-making process, allowing the decision-maker, as was shown in her earlier work on cognitive differences between entrepreneurs and bankers (Sarasvathy, et al., 1998), to include the external environment within the set of alternatives that he could choose from. This comes in
opposition to how bankers logic, in the same paper, would focus on the abstraction of risk and how to reduce uncertainties to reach the end-goal.
Further on, the associative thought employed through ARP processes resonates with effectual reasoning on how the entrepreneur seeks out available means to develop several path-goals that could be sought after. Through its nature, associative thought works to connect all relevant factors between the subject and field, as such, highlighting the different possibilities to be
capitalized on. This understanding has its philosophical foundation in religions of the east on the interdependence of the objects within the field, contrasting it to the West’s discrete view of objects.
Moreover, the focus on relationships in effectual logic resembles the significance of holistic relationships in Eastern thought, and in essence how the individual perceives oneself as part of the larger whole. This prowess enables the decision-maker a capacity to build upon and expand a network of relationships that expands his decision-making capacity.
Other parallels could be drawn between ARP processes and work by Dew, et al. (2009), such as assigning a holistic approach to how expert entrepreneurs analyze situations by observing the whole system and how its constituents connect. Their findings show how expert
entrepreneurs are more experiential, depending more on their personal experiences than do, for example, bankers (Sarasvathy, Simon & Lave, 1998) or MBA students (Dew, et al., 2009) who operate within the knowledge-based rules of how the environment is perceived to work.
These observable similarities between effectual logic and ARP processes develop the judgment that the former employs similar cognitive faculties of the latter, such as field-dependence, holism and associative thought.
Does causal logic and its underlying concept of predictability share similarities with ARS processing? And how does effectuation compare in that regard?
There is much deliberation in causal logic, that involves sequential and predictive thought in order to actualize the consequential steps necessitated to reach an end-goal. In their work on ‘Effectual versus Predictive Logics’, Dew, et al., (2009) explain how “accurate predictions, careful planning and unwavering focus on targets form hallmarks of causal frames.” Whereas effectuation takes a more fluid reaction to the environment, integrating its contingencies into the decision making process, and as such, “Eschewing predictions, imaginative rethinking of
possibilities and continual transformations of targets characterize effectual frames.
Contingencies, therefore, are seen as opportunities for novelty creation — and hence to be leveraged.”
This difference between controlling the environment versus predicting it has also been relayed in work by Sarasvathy, et al. (2003). Where causal logic is seen as perceiving the world as static, operating within a set of rigid rules that the decision-maker accepts as status quo and operates within it, the proposition of effectual rationale avoids a predictive approach, as it observes the world as a interdependent network of relationships that could be leveraged into one path among many more. Dew, et al., (2009) delineation of causation as one that exploits
knowledge versus contingencies, could be paralleled to ARS knowledge-based dependence through formal logic of rules governing objects.
At this point, it would be worthwhile to expound on the nature of causal thought, its foundation on the underpinnings of rational choice theory and predictability, and their relation to ARS processing. Through this, it would become clear how causal logic employs similar cognitive processes to those of ARS, such as analytical, rule-based and sequential thought.
Causation and Rational Choice Theories
The ‘primitive terms and definitions’ of rational choice theory laid out by Simon (1955) traverse through the logic of the decision-maker, such that 1. there are a set of alternatives, 2. of these the decision maker perceives a subset more limited than those objectively available to him, 3. the possible outcomes of these choices, 4. The pay-off from these choices, 5. Information as to which choice will likely occur if a particular alternative is chosen, 6. Information as to the
probability that a particular outcome will ensue if a particular behaviour alternative is chosen.
These terms show how rational thought processes build its logical bearings through a sequential approach, that is, it assumes a certain linearity between the decision-maker’s (subject) action in order that it attains the desired goal (object). The entrepreneur employing causal logic would focus their attention on the underlying rules and parameters that govern this subject-object relationship, and would use a predictive capacity to understand how the relationship between the two unfolds. In other words the “relationship between preferences and constraints can be seen in the purely technical terms of the relationship of a means to an end” (Scott, 2000).
Rational choice theories hold that the choices a person makes tend to maximize utility, making it a rule for inferring utility, that is, a decision-maker behaves in order to maximize utility, subject to certain constraints (Herrnstein, 1990). As such, causality, through its foundational dependence on rational choice theories, operates through a sequential thought process that is bound by perceived rules which determine the relationship between the entrepreneur and his goal. As the same time, through these rules, the entrepreneur predicts the probability of achieving this goal.
Another distinct features that relates rational choice theories to ARS processes is the understanding of individualism within it, explaining complex social phenomenon through individual actions (Scott, 2000). Rational choice theories describe individuals as motivated by goals that express their preferences. Boudon (2003) identified Individualism, Rationality and Consequentialism as three of the six postulates of rational choice theories. Unlike the holistic, field-based, relationship approach, rational choice theories choose to focus more on the action of individuals and to see all social phenomena reducible to these individual actions. The
delineation between the latter and observing the whole through its interdependencies relays this contrast between the cognitive processes or ARP and ARS.
To recapitulate, causality finds its roots in rational choice theory and utility theory, and operates within representative axioms or abstract rules about the environment that create the framework through which the decision-maker goes about framing a problem (Simon, 1955). These
rule-based, sequential, analytical and predictive processes of RCT could be paralleled to ARS processes. The relation could also be found in the decontextualization of the object from its field that is necessary to apply inferential rules. As mentioned earlier, to understand an object’s behavior, attention would primarily be paid to categories and rules that govern the relationship
between the object and the decision-maker. This resonates with ideas from Nisbett, et al., (2001) of field independence and the application of categorical rules to comprehend the behaviour by which the subject-object relationship is governed. This could also be found in the relation to sequential thought and consequential actions in order to reach a goal, described by Sloman (1996) and Evans & Stanovich (2013), an approach used to control uncertainties to achieve predictions through the application of abstract rules.
The above findings would then advocate that effectual and causal reasoning share explicit and distinct similarities with ARP and ARS, respectively. This would have the work argue that effectual logic borrows from ARP faculties, such as field dependence, associative thought and holism, while causal logic employs ARS faculties such as analytic and sequential thought, while operating through assumed rules that are perceived to reflect their environment.
Diagram 1 : Aligning ARP and ARS Processes
After having aligned and funnelled the cognitive process between ARP and ARS to
entrepreneurial reasoning faculties of effectuation and causation, the following part will explore further the importance of cognitive representations and processes in developing an
understanding of entrepreneurial decision-making process, as well as common heuristic traps and biases that these cognitive maps could fall into.
1.4 Cognitive Representations and Entrepreneurship
The journey an entrepreneur embarks on could be observed as a series of decision-making processes that are determined through mental reflection of their surrounding environment. As illustrated before, much of these internal processes are not necessarily shaped by the objective environment itself, as much as it is by the subjective perception an entrepreneur develops. An entrepreneur’s perception of the world, observed through the lens of social constructivism, is a subjective one (Hoffman, 1990), and the problems he identifies, the alternatives he generates and the decisions he takes are very much a product of how he sees himself in relation to it. The matter of an entrepreneur’s cognitive representation, the problem spaces framed and the alternatives generated, is what the work will explore in order to reflect upon the entrepreneurial decision-making process and contextual validity of the cognitive processes behind it.
Cognitive Representations, Problem Spaces and Alternative Generation
An entrepreneur’s perception of their environment is oriented through mental representations that are developed through cognitive habits manifesting from social orientation, culture and education. These mental representations act as representative maps of how an entrepreneur
thinks or believes certain domains within his environment operate. This map in essence assists the entrepreneur to make informed decisions about the environment he acts within.
Coined by Edward Tolman in 1948, cognitive maps are developed through concepts about different aspects of the decision-making environment and certain beliefs about the
cause-and-effect relationships between them, acting as interpretive lenses which aid
decision-makers to focus in on and highlight certain aspects of a problem as important for its diagnosis. These maps, however, are not a representation of the person’s entire belief system, rather it represents the causal assertions of a decision-maker with respect to a certain domain (Schwenk, 1984; 1988). Simon (1957) and Arthur (1994) maintain that these schemata are simplified models of the relationships between variables relevant to a problem (Schwenk, 1988).
Acting as descriptive models, they could, at times, explain the ways through which people derive explanations of the past, formulate future predictions and make present decisions based on one, the other, or a combination of both. While an entrepreneur could have a multiplicity of cognitive maps that determine how he would decide upon different domains, an unstructured problem or complex environment could require using several cognitive maps (Schwenk, 1988).
Schwenk (1988) extends this explanation through clarifying the difference between schemata and cognitive maps, and how the former supersets the latter; a cognitive map may be defined as a particular type of schema or part of a broader schema. Schemata could then be thought of as multiple cognitive representations of attributes and their relationships that constitute
common-sense social theories in order to frame problems, or put simply, it is a problem-framing attribute undertaken by the decision-maker in order to diagnose it (Dane & Pratt, 2007).
Schemas reflect the individual’s knowledge of domain and could be complex structures based on the depth of knowledge it holds.
These cognitive maps, however, are much less an approximation of the real environment, such that an approximation lacks some of the fineness in detail when representing another. In fact, the perceived world is “fantastically different from the real’’ world” (Simon, 1959). As these maps are contextually situated, they are more a product of how an entrepreneur perceives the world to work rather than a true and objective representation of how an environment operates.
Schwenk (1984) reflected on this matter of subjective representation through categorizing the main stages of strategic decision-making. These three stages define the process that a decision-maker would go through when facing an unstructured problem within a complex environment, which finds relevance to many entrepreneurial problems (for further points on this matter, refer to Text Box 1 in Annex). Schwenk (1984) cites work from other literature to develop and condense these three stages:
1. Problem Identification: begins with the recognition of gaps. Whether this gap is a problem to be solved, or a product or service that needs to be created, it could be identified as gap
between a current status and an envisioned one.
2. Alternative Generation: Based on the problem identified, alternatives are generated in order to attain the desired goal(s).
3. Evaluation and Selection: the decision-maker evaluates the given alternatives and selects the one most promising to his endeavour
As such, through the perceived problem space by the entrepreneur, a set of alternatives are generated, from which results the evaluation of choice (Mintzberg, et al., 1976; Schwenk, 1984; Yates, 1990). Stages 1 and 2 are of particular relevance to this work, in the sense of how the formation of different cognitive maps develop the problem spaces, from which alternatives are generated. These stages will be later used within the conceptual model when appraising different cognitive faculties in section 3.
Simon, Sarasvathy and Lave’s (1998) work that compares entrepreneurs to bankers delves into this matter, asking:
Are internal representations/problems spaces important in decision making?
Their work explains how researchers in decision theory have become aware of how personal representations of problems are important in understanding how decisions are made and judgements formed. Further they point to work done by Yates (1990), explicating that all-real world decisions involves two stages, the first being discovery or generation of alternatives, and the second evaluation or choice, marking the first as a representation issue. As touched upon earlier, they show how when entrepreneurs and bankers are faced with the same problem, they form very different representations. While the former works to internalize the environment into their problem space, as such expanding the alternatives to choose from, the latter’s focus on arbitrary rules - such as risk prevention in their presented case - constricts the problem space and the resulting alternatives generated.
This difference in cognitive representation and resulting problem space could well be tied into the differences in perception developed through content and process; that the content the entrepreneur was exposed to has made him think through a process vastly different than that of the banker. Their work extends the argument to highlight the difference between
Alternative-focused thinking and Value-focused thinking. While solving decision problems appears to be the main focus of Alternative focused thinking, Value-focused thinking not only does that, but aims at identifying decision opportunities, or what is referred to as problem
finding. This work finds that ARP processes, due to their field dependence and associative processing function more as problem finding faculties, compared to ARS processes that focus solely on solving a pre-determined problem or achieving a set-goal.
Later work from Sarasvathy (2009) on effectual logic versus MBAs, explains how, “framing matters because the particular frames people use influence how they formulate problems, what alternatives they perceive, generate and attend to, which constraints they accept, reject, and/or manipulate and how, and why they heed certain criteria rather than others in fabricating and implementing new.” As such, the interpretive lens through which the entrepreneur observes his environment, would determine how he would define an unstructured problem (Mintzberg, 1976; Schwenk, 1984).
Nonetheless, the integrity of cognitive maps could be compromised in how they represent an environment. The following explores this further.
The Fallibility of Cognitive Maps
The cognitive maps developed by a decision-maker operate deeply within their mind, to the extent of being imperceptible (Simon, 1955). As much as it lays the foundations for
understanding the environment, it may also inflict a form of cognitive veil that becomes hard to see past, inasmuch as the individual’s subjective perception of the world lays beyond his conscious awareness of its workings (Kahneman & Tversky, 1996). The difference between an entrepreneur’s subjective perception and the objective world, involves both omissions and distortions, which arise in both perception of the environment and the inferences he would make of it (Simon, 1959). This makes the entrepreneur’s cognitive map of his perceived environment to encompass only a minute fraction of all the relevant traits of the real environment, and as such, the observations and inferences developed through this model reflect only a minute representation of the information present within it.
The filtering of information into the mental model is not a passive selection process, but rather one that involves paying “attention to a very small part of the whole and exclusion, from the outset, of almost all that is not within the scope of attention” (Simon, 1959). Though these simplifications are necessary in order to grasp unstructured problems within complex environments, it is in this simplification process that reality is ‘lost in (cognitive) translation’ (Simon, 1959; Schwenk, 1984). In his attempt to understand complex problems, an
entrepreneur would develop certain assumptions about the environment. These assumptions develop the schemata through which he represents the environment, and in doing so he represses awareness of uncertainty and acts on a simplified model of reality which he
constructs. It is this simplification process used to act within uncertain environments that introduces biases in the perceptual process (Schwenk 1984).
Many heuristics and biases have been identified within the literature (Hogarth, 1981; Langer, 1975; Tversky & Kahneman, 1975). Although heuristics could be effectively used by
decision-makers to simplify complex problems and provide efficient shortcuts in processing information (Schwenk, 1988), in many cases, these ‘cognitive shortcuts’ could result in
misleading an individual in perceiving what is not there, or worse, not seeing what is, leading to severe and systematic error (Tversky & Kahneman, 1975). Fundamental Attribution Error or Correspondence Bias are one of the best demonstrated biases in social psychology, where individuals tend to attribute behavior to the object rather than to the field, “even when it is obvious...that the behaviour is produced, or at least heavily influenced, by some contextual or situational factor.” (Ji, et al., 2000). These biases illustrate how the decision-maker may be made to believe things about his relationship to the environment, which in fact are not true, as such overestimating the power of his decisions or judgement and its magnitude in actualizing the desired effect.
To conclude this section, the work emphasizes that the development of cognitive
representations through cognitive processes, their resulting problem spaces and generated alternatives lies at the crux of this work. The simile of “the man with a hammer only sees nails” could approximate the meaning of how using an interpretive lens that does not resemble the situation would lead to misrepresentative problem spaces, and as such to come out of it subpar alternatives and decisions, compared to using a lens that identifies relevant relationships within the environment to be acted upon. The properties of cognitive maps and schemata, inasmuch
as they could be beneficial tools to observe the world through, they could also prevent the individual from seeing what is indeed obvious, yet is blocked out by their frame of mind.
Hoping to have presented sufficiently the difference in cognitive processes between ARP and ARS, aligning these to entrepreneurial reasoning faculties while highlighting the importance of cognition to this field as well as its perceptive reins, the following section will explore the relationship between entrepreneurship and emergence, and how the contextual attributes of ARP processes could be observed to align with the very nature of complexity.
Section Two
Emergence through Entrepreneurship
Expansion means complexity and complexity decay
C. Northcote Parkinson
The study of complexity and emergence to this work is relevant for several reasons.The first is that it poses a challenge to social sciences, and their respective theories, that have “difficulty dealing with intelligible yet unpredictable phenomena” (Le Moigne, 1995), with predictability being one of the factors when appraising ARS processes in this work. This problem is of particular concern to forms of logic that attempt to understand complex systems through reduction and simplification, that is, through breaking a system down to its constituents, a striking particular to Western logic when approaching problems (Le Moigne, 1995). This
becomes a relevant issue to the entrepreneur who attempts to map his environment through this approach, and as such, the type of processing he uses to comprehend its complexity. This is a question that Simon (1986) has posed before, not only questioning the capacity of bounded rationality in understanding complex situations, but also the failure of rational processes in deduction prediction.
The nature of how complexity of a system is and how it becomes is also relevant as it moves us beyond the understanding of closed systems with observed rules of operability, to networked
and complex systems that evolve through the interaction of their constituents. These
interactions are what drives the emergence of novel attributes within complex systems. With this understanding - that a complex system is in a continuous state of flux, an entrepreneur need not focus his attention on the rules governing a system - as these are changing, but rather would be required to grasp the underlying relationships that are shifting how a relevant environment operates. In doing so, they may reflect upon it quite differently.
Complexity itself is a product of the myriad of possibilities coming from the system’s organization (Bousquet & Curtis, 2011). This myriad of possible outcomes is what makes complex systems uncertain and hard to predict. Observing systems as relational, rather than static, enables an entrepreneur a new cognitive space to observe these relations and a capacity to understand how the environment is within a state of continual becoming, rather than
expecting a stable essence to its existence through which they could predict its behaviour.
This work then would suggest that this relational attribute between the constituents that make up a system are better reflected onto an entrepreneur’s cognitive map through ARP processes and its corollaries of field-dependence, associative thought and holism. Echoing Sarasvathy, the expert entrepreneur is one who is able to understand the relations that make up a system. But before delving into that, the work will first discuss the nature of emergence within complex systems.
It is important to note that complexity theory is not a unified body of work, but rather an emerging conceptual framework for developing a non-static understanding of the overlapping and interdependent constituents that make up complex systems (Bousquet & Curtis, 2011). This is contrary to the paradigm associated with Newton and Descartes, which adopts a reductionist approach that views the world as a giant machine that could be understood through dissecting and analysing its constituent pieces independently, and that in doing so, the true dynamics and properties of the system as a whole could be understood. As such defining the whole as no more than the sum of its parts (Bousquet & Curtis, 2011; McKelvey (1994); Rosser, 2012). From this foundation came the understanding that, through measurable behaviours, mathematical laws or rules could be developed to offer a predictive capacity to a system’s probable behavior. This understanding has its parallels with causal logic and rational choice theories for its
dependence on rules to be able to predict outcomes. However, this body of thought became increasingly challenged and revised in the face of empirical research and increasing anomalies over its predictive power within complex social systems (Le Moigne, 1995).
As such, complexity science offers a different view of the world, due to its sensitivity to systemic properties and relationships, which emphasize that a given system exhibits emergent properties from these relationships over time, making the system greater than the sum of its parts
(Bousquet & Curtis, 2011; Manson, 2001; Rosser, 2012). Rosser quotes Bedau (1997) who explains emergence as “being something arising from ‘cooperation of unlike kinds’ with the resulting emergent being such that ‘it cannot be reduced to their sum or difference’’. This emergent phenomena is also defined through the interaction of a system’s interdependent components (Arthur, 1994; MacKay, 2008).
Another peculiarity of complex systems compared to the traditional view, is their non-linearity, meaning that, “causal links of the system form something more complicated than a single chain, for example, a system with feedback loops. A complex system is then one with an intricate graph of causal links, thus highly nonlinear in this sense.” (MacKay, 2008). Nonlinear systems are those that do not display proportionality between input and output, resulting in a failure of the superposition principle. This is, in part, how emergent properties develop within complex system that are not analytically tractable from the attributes of internal components, making the ability to provide accurate prediction of the long-term behavior of highly complex systems a difficult, if not impossible, task (Baas and Emmeche, 1997; Bousquet & Curtis, 2011; Manson, 2001). Central to the phenomena of non-linearity, and intimately connected to its networked pattern, is positive feedback loops, “whereby a system amplifies any perturbation or new input through cycles of recursion or iteration” (Bousquet & Curtis, 2011).This sensitivity to initial conditions, where small changes may lead to large, nonlinear effects, has been likened to the Butterfly Effect, where the flapping of its wings could influence far removed weather systems (Bousquet & Curtis 2011; Manson, 2001).
2.2 Entrepreneurial Emergence
This sensitivity to initial conditions manifests the relationship between entrepreneurship and emergence, and how, for example, through the network effect, entrepreneurial actions and their resulting interactions may multiply exponentially within a given system (Brüderl & Preisendörfer, 1998; Elfring & Hulsink, 2003; Helm, 2000). This understanding, referred to as ‘aggregate
complexity’, explains how individual elements work in concert to create systems with complex behavior (Manson, 2001). To illustrate how systems change over time, it is worthwhile to explain the categorical transitions of complex systems.
Complex systems experience change through three different types of transitions:
self-organization, dissipation and self-organized criticality (Manson, 2001). The work will explore the first two due to their relevance. The first of these, self-organization, is an attribute of a complex system that allows it to change its internal structure in order that it better adapts and interacts with its surrounding environment. Similar arguments have been adopted by Austrian economists, most notably Friedrich Hayek (1948) and echoed by Bak (1996) on how systems are self-organizing through the actions of their constituents (Rosser Jr, 2011). Simon (1981) also discussed the intelligible idea of self-organizing systems. In the purview of this work, this would mean that an entrepreneur would perceive a problem, gap or need within a given system, and generate alternatives that are evaluated vis-a-vis the “the purpose of the system” (Le Moigne, 1995) This identification of a system’s purpose could be unanswered customer needs, changes in resource supply, market niches, and other gaps within a system that an
entrepreneur discerns. As such, a system would be seen as continually self-organizing based on the identification of gaps and the resulting interaction of its constituents.
As complexity takes on the view that any system viewed as a whole in its entirety, would contextually exist within a larger system, then it would develop a relation of mutual causality between itself and other systems (Bousquet & Curtis, 2011). This concept could be better comprehended through the understanding that aggregate complexity and emergence within a system result from the relationships between its constituents, as well as between a system and
its surrounding environment. It is within these relationships, not the constituents themselves, that lies the crux of aggregate complexity. For example, in the business world, constituents are businessmen, entrepreneurs, suppliers, producers, consumers, etc. The exchanges that happen between them through information and goods form these relationships. The strength of these relationships determine the internal structure and how sub-systems are created through constituents with tight connections. These subsystems could be shared consumer preferences and competitive niches. From a broader perspective, a national economy, for example, though it exists within its boundaries, becomes permeable to external considerations such as global trade, human desires and natural resources, making the borders and boundaries of these systems (or subsystems) open and porous to changes happening outside of it. Based on the relationships and exchanges within a system and between itself and its environment, the system continually shapes itself (Manson, 2001). This view moves us away from the understanding of closed systems, to systems with open, porous borders that react to and interact with its environment.
This relational hierarchy has been mirrored in the work of Simon (1995) on complexity and near decomposability, where hierarchical patterns could develop from the process of market
institutions over time out of lower-level interactions, with the higher-level ones operating through a downward causality, as such embedding the lower ones within themselves. Rosser (2011) explains this through illustrating how “futures markets arose arose out of spot markets, options markets arose out of futures markets, and derivatives markets arose out of options markets, with ever higher orders of derivatives continuing to emerge over time.”
Furthermore, causal, vertical relationships between the micro, meso and macro affect one another through interdependent relationships that traverse through a multiplicity of directions. These connections exists horizontally as well, between companies and themselves, as well as sectors and economies. To illustrate this mutual causality, we could look at the following example: a software company in Barcelona would vertically exist within the software industry, and the industry within Spain’s larger economy, and Spain’s economy within the European economy, and that within the global. Yet the global economy is in itself affected with rife social and political affairs, whereby a labour strike in India’s software industry may ripple its way to that same software company in Spain. How strong that ripple may be or the outcome as positive or negative is a question beyond the scope of this work.
This idea takes us to the second attribute of a complex system, is that it becomes dissipative when either external forces or internal fluxes drive it to an unorganized state to which it then crosses into a more organized state. Economies can enact this attribute when confronted by large shifts in their relationship with the environment (Manson, 2001). One could consider the 2008 global financial crisis and its far-reaching effect on social domains and political policies.
In this sense, these properties of complexity advocate a relational style of thought and contextual understanding of networked relationships, suggesting an ‘intricate intertwining or interconnectivity of elements within a system, and between a system and its environment’ (Mitleton-Kelly, 2000). Self-organization becomes a key property of complex systems as a product of interactions between individual entities that result in a bottom-up emergence of complex systems (Bousquet & Curtis, 2011; Simon, 1995). Emergence then is seen as the process through which complex structures arise from the interaction of simpler lower-level
systems. This fluid process of mutual causality within an economy and its institutions works to continually shape systems, such as higher-level systems exhibiting “supervenience” or novelty from the lower-level systems. With the emergence of these new levels, comes new rules of supervenience that affect both the local domain at the lower-level and shape the higher levels.
While not all complex systems necessarily exhibit the phenomena of emergence, agent-based complexity associated with economics often do, in which the agents interactions often lead to emergence of order out of disorderly situations (Rosser, 2011), or put differently, bring about new order from old orders. One could consider the effect of disruption of new technologies that can start a chain of radical change with an economy and how, as a reaction, the phenomena of self-organization takes place. This notion shares a close resemblance to the Schumpeterian model of creative destruction, and how new orders arise from old ones through adoption (Knudsen & Swedberg, 2009). Further, work by Israel Kirzner has emphasized how
entrepreneurial activities could be observed as driving the evolution of the economy in uncertain environments (Rosser, 2011).
The emergence of a new out of an old order could be observed through how entrepreneurial disruptive forces could also affect the socio political domains consequently. Friedrich Hayek observed how markets not only emerged through processes of self-organization, but also how “higher level institutions of society did so as well such as systems of law, customs, and norms of social behavior” (Rosser, 2011).
This could be seen through topical examples such as a AirBnb's effect not only on the
have passed regulations that limit the usage of apartments to a number of days a year. The higher-level regulations emerged as a result of lower-level resident complaints or housing stock issues. This intertwining of the economic, social and political could also be mirrored in examples such as Uber with the taxi labour unions or Spotify with the UK’s Musicians’ Union. In some cases, as with Uber, it was able to overcome the higher-level orders instilled by labour unions in some countries and find its way around the law. These novel entrepreneurial disruptions are increasingly changing the way through which we organize our social lives, which are deeply intertwined with the political regulations and addendum that follows, resulting not only in the emergence of new markets through processes of self-organization, but also social and legal norms. Sarasvathy (2001) cast a similar reference point when arguing for effectuation and the evolutions of markets out of agents’ interactions. Contemporary economic examples such as these illustrate how low-level and high-level interactions affect each other interchangeably, as well, their interweaving relationship with social and political systems.
The emergence and adoption of these novel systems at today’s exponential rate would not be possible were it not for the medium that enables a system’s constituents to forge these
relationships. This is an important point to this work, that increased connectivity brings about the possibility of emergence in magnitudes that were unimaginable fifty years ago. The relevance of complexity to modern times has been partly driven by the growing realization that “non-linear and networked social relationships characterize much of the contemporary world” (Bousquet & Curtis, 2011). At the heart of socioeconomic and sociopolitical complexity, is the network effect brought about by the proliferation of the internet and telecommunications devices, enabling the formation of new networked forms of social organization (Castells, 1996).
The following will explore the problems of prediction within uncertain and complex environments.
2.3 Emergence and Entrepreneurial Uncertainty
With increasing complexity comes uncertainty. The nature of emergent phenomenon make it hard to predict or control its uncertainties, as a result of the growing myriad of possibilities from a system’s interconnected components as well as the difficulty in predicting how a system’s components would react to internal or external changes. Manson (1995) illustrates this point through explaining how even through a thorough understanding of an economy, policies may be enacted within a major sub-system to react to emerging qualities, such as price regulations. Yet, beyond the short-term, it becomes difficult to anticipate how either the emergent behaviour or, in this example, the policy intervention, would reflect on the sub-system and its relation to other sub-systems or high-level orders. This implies that any change to the system, be it
interventionist to react to an emergent attribute or one occurring from the interaction of its constituents could have far-reaching effects beyond an analyst’s or a model’s prediction of it.
This issue of uncertainty is further complicated by the agents reflexivity whom are capable of reflecting upon and adjusting to knowledge produced about the same systems (Bousquet & Curtis, 2011). While in his work on complexity of an economic system, Le Moigne (1995) defines an essential feature of complexity as intelligible unpredictability, in that a systematic model of a complex system can produce “incompletely expected behavior in a way that is understandable to the model builder.”
