Effectuation – Can you know the future?

I would like to thank John King, a former Careers Adviser who now runs Engentia, an ‘enterprise and engagement’ consultancy, for contributing this post — David
Disarmed the thunder's fires - by ZedZap

What if you can't see what's ahead?

Is it possible to know the future? Most people would say not. Yet many careers theories and theories about entrepreneurial behaviour inadvertently assume that it is possible.

In 1921 Frank Knight, who once taught the Nobel laureate Milton Friedman, wrote a seminal book called Risk, Uncertainty and Profit. Knight explained that there was a difference between risk (where the probability of success is known) and uncertainty (where the probability of success is unknown). More recently the economist Saras Sarasvathy, in her book Effectuation, pointed out that Knight had actually written about a third category – only no-one had noticed. This overlooked third category described a future that is not only unknown, but is unknowable, even in principle.

This observation, that there is an important difference between a future that is difficult to predict and a future that is impossible to predict, could lead to profound changes in our understanding of career choice.

The future isn’t just unknown, it is unknowable

If the future is risky but it is possible to roughly predict our chance of success, then the logical action is to analyse the situation carefully, for instance by thorough investigation of the latest labour market information. The course of action with the greatest probability of achieving a desired outcome should then be chosen. In this case, it could be applying to a company in an interesting industry sector which attracts a relatively low number of job applications.

If the future is uncertain and therefore it is impossible to predict our chances of success with certainty, then our analysis becomes unreliable. However, we can still estimate the best course of action and proceed on this basis. We can look at what others are doing, and we can make judgements based on anecdotal evidence: for example, on information received at an alumni event.

But what if the future is impossible to predict?

If this is the case, then any logic based on estimation or analysis is misleading. It will create a mirage of the future.

What should you do when your logic is illogical?

Is there a logic which is useful under these conditions, when the future is unknowable? Saras Sarasvathy claims to have discovered such a logic, based on the idea of non-predictive control, which she has termed ‘effectuation’ – the opposite of causation.

Sarasvathy conducted a ‘think-aloud’ experiment – where participants attempt to solve a problem whilst describing their thoughts to the experimenter – on 45 top US entrepreneurs. She found that they utilised different processes when compared to a control group. (Interestingly, the concept of entrepreneurial action as a process, rather than being driven by personality traits, handily solves some big problems in entrepreneurship research, not least that entrepreneurs don’t actually appear to be that much different from other kinds of people).

Sarasvathy (2007) found that the entrepreneurs used the following principles:

  • The bird-in-hand principle — Create something new with your existing means, rather than trying to discover new ways to achieve given goals. What can you make with what you have today?
  • The affordable-loss principle — Decide in advance what you are willing to lose on a project (time, money or other resources), than maximise what you can get with this investment.
  • The crazy-quilt principle — Don’t carry out elaborate competitive analyses. Work with any and all stakeholders who are willing to make a real commitment to working with you. Whoever joins you will determine your mutual goals, not the other way round.
  • The lemonade principle — Acknowledge contingency and happenstance by taking advantage of surprises, rather than trying to overcome them or work your way around them. If you get lemons rather than oranges as expected, then make lemonade!
  • The pilot-in-the-plane principle — This principal refers to the fact that most plane crashes are caused by, or may be avoided by, human action rather than technical or environmental factors. You are in the pilot seat of your career. You can act upon an apparently risky situation to reduce the risk. Human environments are not static.

Together, these principles offer a vision of a world that is not fixed: a world that we can shape. It offers a bright new future which can be designed by us.

  • Can careers be predicted?
  • To what extent is career ‘choice’ a choice amongst false alternatives – mirages of the future?
  • Can we empower our clients to construct their futures by applying these principles?

Further reading

  • Knight, F.H. (1921) [2002]. Risk, Uncertainty and Profit. 3rd edn. Washington, DC: Beard Books.
  • Sarasvathy, Saras D. (2007). Effectuation: Elements of Entrepreneurial Expertise. Cheltenham, UK: Edward Elgar Publishing.

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