On Logical Difficulties, Philosophy, and the T.C.E. Explanation of the Firm

Abstract

By exploring the implications of the linkage between Knight and Pragmatism, some non-trivial implications can be argued to exist. Specifically, section 2 outlines the T.C.E. literature, and how it exists in an atmosphere mixed with Marshallian competition and Knightian uncertainty. Section 3 then considers the disparate philosophical positions behind the work of Knight and Marshall. Knight's critique of Marshall is seminal, not because of any trivial technical innovations that Knight may have inspired within economic theory, but because Knight grounds his work on a philosophical viewpoint that effectively devastated Hegelian philosophy: American Pragmatism. Section 4 then links together the previous two sections by considering how the T.C.E. literature exhibits a dependency on both Pragmatism and Hegelian philosophy. The non-trivial implications of understanding the T.C.E. literature as a branch of Marshallian economics, which recognises Knightian uncertainty, are developed in section 5. Possible conclusions and a summary of the argument are provided in section 6.uncertainty, Knight, the theory of the firm, Pragmatic philosophy, Hegelian philosophy, Transaction Cost Economics,

Entrepreneurs as Scientists: A Pragmatist Approach to Producing Value Out of Uncertainty

“…Entrepreneurs must explore various functional, means-ends relations inherent to their theory, engage in experiments to limit the harm of failure, and update their plans thereafter (Mousavi & Garrison, 2003). Ends from one round of experimental action then become the means for the next cycle of activity, which may range from a creative revision of the idea to its complete abandonment (Nash & Rybak, 2010).…”

“…The theoretical foundations of our perspective are found in classical pragmatism (Dewey, 1915;Peirce, 1931Peirce, -1958 and in cognitive psychology's view of the human brain as a theory testing and error minimization device (Brunswik, 1956;Oaksford & Chater, 2007). Pragmatism represents a theoretical cornerstone for our theorizing given deep connections between Knight's (1921) landmark research program on uncertainty, and the core tenets of pragmatism, such as the practical value of resources in solving problems at hand, parallels between common sense inquiry and scientific inquiry, and the role of experimentation for learning (Dewey, 1938;Nash, 2003;Nash & Rybak, 2010). Cognitive psychology (Hohwy, 2013;Navarro & Perfors, 2011) complements our reasoning by showing that we see the world through "theories in use"theories which function as "priors", which we then update in order to minimize prediction error between our theories and the data we generate (Clark, 2013;Hastie & Dawes, 2010).…”