How Entrepreneurs Reason and Make Decisions


 
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How Entrepreneurs Reason and Make Decisions
Paula Kokare, Project Manager, Switzerland, Premium Member
Sarasvathy (2001) argues effectual reasoning (effectual logic) guides the understanding of how entrepreneurs process information and carry out decision-making process. Effectuation is typically used in situations of uncertainty while causal reasoning is used when the future is predictable. (Editor: causal reasoning is based on finding relationships between a cause and its effect. The main 3 types of causal reasoning are: Deduction, Induction, and Abduction). Effectuation, as opposed to causal decision-making, is based on on-going strategy development, flexibility and experimentation. Sarasvathy mentions five principles of effectuation:
  • Non-predictive control of the future ("PILOT-IN-THE-PLANE PRINCIPLE"): entrepreneurs are not willing to forecast the future and making decisions based on trend expectations. Rather, they focus on things they can influence directly and intervene to shape the future;
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