The Role of Assumptions in Management Research

26 May 2010 at 12:10 pm Nicolai Foss 8 comments

| Nicolai Foss |

A striking difference between economics and (most) management research is that while economists are obsessed with the role of assumptions in theorizing, management scholars as a rule don’t seem to spend much time on assumptions, at best tucking them away under “boundary conditions,” and, in general, having rather little patience with “assumptions discussions.” In particular, the eyes of management scholars of the more descriptive (“phenomenological”) stripe glaze over from boredom or inattention when the issue is raised.

Major economists (Samuelson and Friedman come immediately to mind) have written famous methodological papers on assumptions. A significant portion of what passes as “economic methodology” is taken up with the nature and status of assumptions. Prominent philosophers have written on the role of assumptions in economics (e.g., Alan Musgrave, Daniel Hausman). However, I know of not a single paper in management research dedicated to the issue.

And yet, management scholars do theorize. Theorizing means constructing some kind of model, some kind of simplified “parallel universe” — which logically must entail making assumptions. (Obviously, management scholars explicitly influenced by economics are quite conscious about all this). In fact, assumptions as extreme as many found in economics can be found in management research, such as assumptions that employees are perfectly docile; organizations do not have any incentive conflict; or that resources are, as a starting point for analysis, completely homogeneous. Much of the dynamics of dispute in management research in actuality revolves around such assumptions. Therefore, the lack of explicit attention to assumptions in management research is puzzling.

This and other issues are discussed in a new paper by Niklas Hallberg and myself, “Symmetry and Theoretical Isolation in the Resource-based View: Treating Product Markets Like Factor Markets.” We build on the methodological work of Finnish philosopher Uskali Mäki and examine the role of assumptions in the resource-based view. We show how the RBV to a large extent has borrowed the economics practice of making highly “asymmetrical” assumptions (e.g., agents are highly ignorant about some variables and completely informed about other variables, leaving little in between; see this paper for the case of contract theory). Notably, the treatment of markets in the RBV is highly asymmetrical, factor markets being treated as highly imperfect, product markets being treated as perfect. We argue that one way in which the RBV can make progress is by relaxing such asymmetrical assumptions.

Mail me at njf.smg@cbs.dk if you want a copy. Thx.

Entry filed under: - Foss -, Recommended Reading, Strategic Management.

CFP: “Law, Economics, and Finance” The Unbearable Lightness of Economics (?)

8 Comments Add your own

1. David Hoopes | 26 May 2010 at 4:12 pm

Nice post.
I often think management scholarship could spend more time thinking through assumptions. Much of what we do has implicit assumptions. Making these more explicit makes building a body of work and communicating across streams of work more manageable (so to speak).
2. srp | 26 May 2010 at 9:09 pm

There is actual resistance to explicit statement of assumptions in management. More so to deductive arguments from those assumptions. Especially hated are abstraction arguments where you show that under a set of plausible simple assumptions the outcome looks completely different from what we observe, pointing to the critical importance of things we usually take for granted. Exhibit A: Williamson on why you can’t explain governance institutions without invoking the presence of opportunism. Lots of management people really hate that one.
3. Robert Macdonald | 26 May 2010 at 9:10 pm

I think these are fair points as a general observation. Too much management work seems to be “let’s do a survey” without enough consideration of underlying assumptions and theory.

That said, the management journals do publish some good pieces from time to time on theorising, identification of that which represents a ‘good theory’ and, I guess, by extension, consideration of asumptions.
4. Joe Mahoney | 27 May 2010 at 1:34 am

Nicolai,

Please consider:

Lam, Shun Yin (2010). “What kind of assumptions need to be realistic and how to test them: A response to Tsang (2006)”
Strategic Management Journal, 31(6): 679-687.
5. Nicolai Foss | 27 May 2010 at 7:55 am

SRP: You are so right. More generally, many management scholars (and students) truly dislike counter-factual arguments.

Joe: Hmmm, doesn’t that reference actually prove my point? A brief note. Published only this year. But at least the discussion has started …
6. David Hoopes | 28 May 2010 at 12:52 pm

I don’t expect the discussion to go very far.
Do assumptions have to be realistic?
The problem in management is making assumptions explicit. Writers enjoy being vague because it makes “theories” seem more general.
7. TJ Bezuidenhoudt | 1 February 2011 at 3:32 am

Hi Nicolai

I read your online article, and the points you make on “assumptions” is revealing. I initially studied economics but then switched to psychology. For a long time I have assumed (taken it for granted) that “it is common knowledge that our assumption underlies most of our theories/beliefs”. What I have observed over the years is that: “Given a lack of facts, we are forced to make assumptions, in order to be able to make decisions”. We would not be able to progress if we were unble to make assmptions or use our best judgement. However over time these assumptions appear to “become like facts in our minds and we act as if there was irrfutable evidence for it”, and any controrary information becomes to be viewed with ridicule, and sometimes outright hostility. (My studies of the Reformation prior to the Gutenberg Press, appears to suggest that much of the suppression of knowledge, resulted from “acting on assumptions as if it was a God-given Truth”.)

I am thus searching for any works on “The role and power of assumptions” and thus came upon your website. It appears, surprisingly, that: “I have made an assumption that there is an authoritative body of knowledge and research on assumptions” but it appears to have been a wrong assumption.

Could you perhaps recommend the work of person who is an authority on the subject of assumptions?

Best regards

TJ
8. silence | 9 May 2014 at 8:09 am

you did not manage to explore the potential necessity of assumptions in research