Effectuation or Prediction? Dynamic Blends of Entrepreneurial Decision Logics under Knightian Uncertainty

Abstract

Entrepreneurs typically operate within a context characterized not only by high uncertainty but also by an environment where planning rooted in predictive reasoning may not always be the most effective. This paper examines two diametrically opposed logics in entrepreneurshiprelated decision-making, specifically causal (or predictive) strategies and effectuation. It draws on Knight’s (1921) theories of uncertainty and effectuation theory, formulated by Sara V. Saravathy in 2001. The analysis compares the applicability of planning as a mechanism for achieving predetermined goals with effectuation throughout the entrepreneurial process. It investigates two empirical case studies in entrepreneurship to explore how effectuation operates during the early stages of ventures such as Airbnb. Conversely, Tesla offers insights into a hybrid approach integrating predetermined outcome planning and effectuation. The findings imply that both methods are applicable at distinct stages of an entrepreneurial venture’s growth.