From Knightian uncertainty to real‐structuredness: Further opening the judgment black box

Abstract

Research Summary Entrepreneurial judgment remains a concept that resembles a black box. This article attempts to further open that black box by developing a dimensionalization of types of judgment. To achieve this, it joins recent efforts to explicitly link entrepreneurship to Simonian themes by integrating the notion of decision problem structures into the judgment‐based approach (JBA) to entrepreneurship. This article proposes a more comprehensive and nuanced approach to judgment in the face of decision problems we label “real‐structured.” Extending the JBA comes with several important implications: It uncovers additional entrepreneurial knowledge problems, provides new insights for both economic organization and judgment communicability, and informs research on entrepreneurial success and failure. It also sheds new light on the controversy over the relationship between effectuation and judgment. Managerial Summary When taking decisions, entrepreneurs cannot know how the future will pan out. Those decisions are made under conditions of uncertainty and only time will tell whether they prove astute or otherwise. The uncertainty of the future leads entrepreneurs to exercise judgment based on their individual beliefs and to act accordingly. The components of that entrepreneurial judgment remain rather underexplored. The purpose of this article is to dig deeper into, and thereby improve, the understanding of entrepreneurial judgment. The main result of this article is a four‐part dimensionalization of judgment, covering entrepreneurial (sub‐)judgments on the effects incurred by action, the appraisal of action alternatives, the goals underlying action, and resolving the decision problem.

Top Manager Heuristics Under Knightian Uncertainty: Control Versus Prediction and the Moderating Impact of Framing

“…Uncertainty management strategies are often entrepreneurial action‐based, embedded in ambiguous contexts, lacking a well‐defined structure, and plagued with constraints and path dependencies. Therefore, entrepreneurship theories dominate this stream: effectuation (Read et al, 2009a, 2009b; Sarasvathy, 2001, 2008) and the judgement‐based approach (JBA) (Foss et al, 2019; Foss and Klein, 2012, 2015; Rapp and Olbrich, 2023), which relate to decision making by entrepreneurs when dealing with creating their ventures, while hardly any historical data is available to make predictive projections. Both agree that heuristics for responding to uncertainty are control‐based, combine heterogenous resources (or Means ) in the pursuit of profit under genuine uncertainty.…”

Entrepreneurial judgment governance adaptation for digital transformation in established firms

“…Indeed, uncertainty is the essence of EJ (Rapp & Olbrich, 2023). Uncertainty manifests itself in EJ as a lack of information regarding a critical decision (Galbraith, 1973), and focuses on difficulties in the accurate prediction of relevant aspects of EJ, such as a set of options (e.g., the unknown number of options) and their results and consequences (Gomes et al, 2021; Milliken, 1987; Packard et al, 2017).…”

“…In this vein, judgments are made by "boundedly rational" decisionmakers, who combine objective reality with subjective and tacit interpretations, based on incomplete and sometimes incorrect knowledge, without right or wrong judgments ex-ante (Foss et al, 2019;Foss & Klein, 2012;Knight, 1921;Packard et al, 2017). Although the research on EJ remains in its infancy (Rapp & Olbrich, 2023), it provides a fundamental link between decision-making and uncertainty regarding innovation activities (Foss et al, 2019). Indeed, uncertainty is the essence of EJ (Rapp & Olbrich, 2023).…”

“…The importance of established firms developing and organizing new responses to uncertainties related to DT has drawn attention to entrepreneurial judgment (EJ). EJ is a reasoned and subjective process in which individuals purposefully select a course of action related to sensing, seizing, and transforming opportunities into valuable innovations under conditions of uncertainty (Foss et al, 2019; Packard et al, 2017; Rapp & Olbrich, 2023). EJ entails making resource allocations and using decisions about the future without employing formal, model‐based probabilities (Foss & Klein, 2020).…”

“…EJG comprises an architecture of components and the relationships among them. These components contain formal and informal mechanisms, such as rules that define what (e.g., resource allocation decisions); how (e.g., portfolio management processes and alliances); who (e.g., a separate unit, a task force); and when (e.g., short or long term) (Foss et al, 2019; Foss & Klein, 2012; Foss & Saebi, 2018; Furr & Eisenhardt, 2021; Rapp & Olbrich, 2023). An illustrative example of EJG is Portfolio Innovation Management (e.g., Klingebiel & Rammer, 2014), which uses dedicated committees with specific rules to select incremental or radical innovations (O'Connor et al, 2018).…”