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Social Reality, the Boundaries of Self-Fulfilling Prophecy, and Economics

Author

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  • Teppo Felin

    (Marriott School, Brigham Young University, Provo, Utah 84602)

  • Nicolai J. Foss

    (Center for Strategic Management and Globalization, Copenhagen Business School, 2000 Frederiksberg, Denmark, and Department of Strategy and Management, Norwegian School of Economics and Business Administration, N-5045 Bergen, Norway)

Abstract

Organizational scholars have recently argued that economic theories and assumptions have adversely shaped management practice and human behavior, not only leading to the incorporation of trust-eroding market mechanisms into organizations, but also unnecessarily creating self-interested behavior. A number of highly influential papers have argued that the self-fulfilling nature of (even false) theories provides the underlying mechanism through which economics has adversely shaped not just social science but also management practice and individual behavior. We question these arguments and argue that there are important boundary conditions to theories falsely fulfilling themselves, boundary conditions that have hitherto been unexplored in organizational research, and boundary conditions that question the underlying premises used by organizational scholars and social scientists to attack economics. We specifically build on highly relevant findings from social psychology, philosophy, and organizational economics to show how (1) objective reality and (2) human nature provide two important boundary conditions for theories (falsely or otherwise) fulfilling themselves. We also defend organizational economics, specifically the use of high-powered incentives in organizations, and argue that self-interest (rightly understood) facilitates in creating beneficial individual and collective and societal outcomes.

Suggested Citation

  • Teppo Felin & Nicolai J. Foss, 2009. "Social Reality, the Boundaries of Self-Fulfilling Prophecy, and Economics," Organization Science, INFORMS, vol. 20(3), pages 654-668, June.
  • Handle: RePEc:inm:ororsc:v:20:y:2009:i:3:p:654-668
    DOI: 10.1287/orsc.1090.0431
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    2. Walgenbach, Peter, 2011. "Weg von der Agenturtheorie? Aber was dann?," Die Unternehmung - Swiss Journal of Business Research and Practice, Nomos Verlagsgesellschaft mbH & Co. KG, vol. 65(4), pages 312-319.
    3. Vern L. Glaser & Peer C. Fiss & Mark Thomas Kennedy, 2016. "Making Snowflakes Like Stocks: Stretching, Bending, and Positioning to Make Financial Market Analogies Work in Online Advertising," Organization Science, INFORMS, vol. 27(4), pages 1029-1048, August.
    4. Teppo Felin & Nicolai J. Foss, 2009. "Performativity of Theory, Arbitrary Conventions, and Possible Worlds: A Reality Check," Organization Science, INFORMS, vol. 20(3), pages 676-678, May.
    5. Yang, ChunLei & Modell, Sven, 2015. "Shareholder orientation and the framing of management control practices: A field study in a Chinese state-owned enterprise," Accounting, Organizations and Society, Elsevier, vol. 45(C), pages 1-23.
    6. Ehrmann, & Meiseberg,, 2016. "Managementforschung und was die Praxis von ihr (nicht) will – Eine marktorientierte Betrachtung," Die Unternehmung - Swiss Journal of Business Research and Practice, Nomos Verlagsgesellschaft mbH & Co. KG, vol. 70(2), pages 187-206.
    7. Mark J. Zbaracki & Mark Bergen, 2010. "When Truces Collapse: A Longitudinal Study of Price-Adjustment Routines," Organization Science, INFORMS, vol. 21(5), pages 955-972, October.
    8. Gautam Ahuja & Sai Yayavaram, 2011. "PERSPECTIVE ---Explaining Influence Rents: The Case for an Institutions-Based View of Strategy," Organization Science, INFORMS, vol. 22(6), pages 1631-1652, December.
    9. Teppo Felin & Teppo Felin, 2012. "Cosmologies of Capability, Markets and Wisdom of Crowds: Introduction and Comparative Agenda," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 33(5-6), pages 283-294, July.
    10. Fabrizio Ferraro & Jeffrey Pfeffer & Robert I. Sutton, 2009. "How and Why Theories Matter: A Comment on Felin and Foss (2009)," Organization Science, INFORMS, vol. 20(3), pages 669-675, June.
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