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Effectuation under risk and uncertainty: A simulation model

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  • Welter, Christopher
  • Kim, Sungho

Abstract

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.

Suggested Citation

  • Welter, Christopher & Kim, Sungho, 2018. "Effectuation under risk and uncertainty: A simulation model," Journal of Business Venturing, Elsevier, vol. 33(1), pages 100-116.
    • Handle: RePEc:eee:jbvent:v:33:y:2018:i:1:p:100-116
    DOI: 10.1016/j.jbusvent.2017.11.005
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    Cited by:

    1. Sebastian Markus Szambelan & Yi Dragon Jiang, 2020. "Effectual control orientation and innovation performance: clarifying implications in the corporate context," Small Business Economics, Springer, vol. 54(3), pages 865-882, March.
    2. Chetty, Sylvie & Martín Martín, Oscar & Bai, Wensong, 2024. "Causal foreign market selection and effectual entry decision-making: The mediating role of collaboration to enhance international performance," Journal of Business Research, Elsevier, vol. 172(C).
    3. Vuorio, Anna & Torkkeli, Lasse, 2023. "Dynamic managerial capability portfolios in early internationalising firms," International Business Review, Elsevier, vol. 32(1).
    4. Xiaoyu Yu & Xiaotong Meng & Laura Stanley & Franz W. Kellermanns, 2024. "Self-employment and life satisfaction: The contingent role of formal institutions," Small Business Economics, Springer, vol. 63(1), pages 135-163, June.
    5. Kamble, Sachin & Rana, Nripendra P. & Gupta, Shivam & Belhadi, Amine & Sharma, Rohit & Kulkarni, Praveen, 2023. "An effectuation and causation perspective on the role of design thinking practices and digital capabilities in platform-based ventures," Technological Forecasting and Social Change, Elsevier, vol. 193(C).
    6. Dean A. Shepherd & Johan Wiklund, 2020. "Simple Rules, Templates, and Heuristics! An Attempt to Deconstruct the Craft of Writing an Entrepreneurship Paper," Entrepreneurship Theory and Practice, , vol. 44(3), pages 371-390, May.
    7. Pan Guo & Xiaofeng Li & Yanlin Jia & Xu Zhang, 2020. "Cloud Model-Based Comprehensive Evaluation Method for Entrepreneurs’ Uncertainty Tolerance," Mathematics, MDPI, vol. 8(9), pages 1-14, September.
    8. Cherbib, Jihene, 2024. "Exploring the interplay between entrepreneurial orientation, causation and effectuation under unexpected covid-19 uncertainty: Insights from large French banks," Technological Forecasting and Social Change, Elsevier, vol. 200(C).
    9. Kollmann, Tobias & Stöckmann, Christoph & Kensbock, Julia M., 2019. "I can't get no sleep—The differential impact of entrepreneurial stressors on work-home interference and insomnia among experienced versus novice entrepreneurs," Journal of Business Venturing, Elsevier, vol. 34(4), pages 692-708.
    10. Richard J. Arend, 2022. "Balancing the perceptions of NK modelling with critical insights," Journal of Innovation and Entrepreneurship, Springer, vol. 11(1), pages 1-15, December.
    11. Healey, Mark P. & Bleda, Mercedes & Querbes, Adrien, 2021. "Opportunity evaluation in teams: A social cognitive model," Journal of Business Venturing, Elsevier, vol. 36(4).
    12. Yanxia Li & Bo Zou & Feng Guo & Jinyu Guo, 2022. "Academic entrepreneurs’ effectuation logic, role innovation, and academic entrepreneurship performance: an empirical study," International Entrepreneurship and Management Journal, Springer, vol. 18(1), pages 49-72, March.
    13. Sylvia Hubner & Fabian Most & Jochen Wirtz & Christine Auer, 2022. "Narratives in entrepreneurial ecosystems: drivers of effectuation versus causation," Small Business Economics, Springer, vol. 59(1), pages 211-242, June.
    14. Peng, Xue Bing & Liu, Yue Ling & Jiao, Qi Qi & Feng, Xiao Bin & Zheng, Bei, 2020. "The nonlinear effect of effectuation and causation on new venture performance: The moderating effect of environmental uncertainty," Journal of Business Research, Elsevier, vol. 117(C), pages 112-123.
    15. Arend, Richard J., 2022. "Confronting when uncertainty-as-unknowability is mismodelled in entrepreneurship," Journal of Business Venturing Insights, Elsevier, vol. 18(C).
    16. Ruiqi Song & Lingduan Xiang, 2023. "Driving New Venture Sustainability: A Study Based on Configuration Theory and Resource Orchestration Theory," Sustainability, MDPI, vol. 15(10), pages 1-18, May.
    17. Magdalena Markowska & Dietmar Grichnik & Jan Brinckmann & Diana Kapsa, 2019. "Strategic orientations of nascent entrepreneurs: antecedents of prediction and risk orientation," Small Business Economics, Springer, vol. 53(4), pages 859-878, December.
    18. Emmanuel Kwasi Mensah & Lawrence Adu Asamoah & Vahid Jafari-Sadeghi, 2021. "Entrepreneurial opportunity decisions under uncertainty: Recognizing the complementing role of personality traits and cognitive skills," Journal of Entrepreneurship, Management and Innovation, Fundacja Upowszechniająca Wiedzę i Naukę "Cognitione", vol. 17(1), pages 25-55.
    19. Parker, Simon C., 2020. "Editorial: On submitting economics articles to JBV," Journal of Business Venturing, Elsevier, vol. 35(4).
    20. Tamara Galkina & Irina Atkova, 2020. "Effectual Networks as Complex Adaptive Systems: Exploring Dynamic and Structural Factors of Emergence," Entrepreneurship Theory and Practice, , vol. 44(5), pages 964-995, September.
    21. Jiang, Yi & Tornikoski, Erno T., 2019. "Perceived uncertainty and behavioral logic: Temporality and unanticipated consequences in the new venture creation process," Journal of Business Venturing, Elsevier, vol. 34(1), pages 23-40.
    22. Küsshauer, Alexander & Baum, Matthias, 2023. "The good, the bad and the uncertain: Employers' perceptions of former entrepreneurs," Journal of Business Venturing, Elsevier, vol. 38(2).
    23. Sebastian Kruse & David Bendig & Malte Brettel, 2023. "How Does CEO Decision Style Influence Firm Performance? The Mediating Role of Speed and Innovativeness in New Product Development," Journal of Management Studies, Wiley Blackwell, vol. 60(5), pages 1205-1235, July.
    24. Dan Long & Houhong Wang & Peili Wang, 2021. "Built to Sustain: The Effect of Entrepreneurial Decision-Making Logic on New Venture Sustainability," Sustainability, MDPI, vol. 13(4), pages 1-20, February.

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