Archive for December, 2011

Top Posts of 2011

| Peter Klein |

Here are our most popular posts published in 2011:

  1. The Value of Steve Jobs
  2. The Performative Effects of Social Constructionist Professors in Business Schools
  3. Creative Destruction, Music-Industry Edition
  4. The Organizational Structure of Al Qaeda
  5. The Confusing “Business Model” Construct
  6. Classic Professor Poses
  7. The Future of Managerial Economics
  8. The AER Canon
  9. Famous Quotations Taken Out of Context
  10. Why Do Firms Hire Management Consultants?
  11. What the Seminar Speaker Really Means
  12. Entrepreneurship Lives!
  13. Scientific Misconduct in Management Research
  14. The Downside of Case Studies
  15. Confusing Definitions of Entrepreneurship

Thanks to our readers, commenters, guests, and supporters for a great 2011. We’re looking forward to 2012!

31 December 2011 at 11:45 pm 2 comments

“Illusions in Regression Analysis”

| Peter Klein |

Apropos Lasse’s post, check out Scott Armstrong’s “Illusions in Regression Analysis,” via Craig Newmark, who highlights passages like this:

This illusion [that correlation implies causality] has led people to make poor decisions about such things as what to eat (e.g., coffee, once bad,is now good for health), what medical procedures to use (e.g., the frequently recommended PSA test for prostate cancer has now been shown to be harmful), and what economic policies the government should adopt in recessions (e.g., trusting the government to be more efficient than the market).

And this:

Do not use regression to search for causal relationships. And do not try to predict by using variables that were not specified in the a priori analysis. Thus, avoid data mining, stepwise regression, and related methods.

26 December 2011 at 12:02 pm 4 comments

Teaching in the 2010s

| Peter Klein |

A new University of Missouri policy. As the young people would say, this was so not a problem in my day:

2. Students may make audio or video recordings of course activity unless
specifically prohibited by the faculty member.

a. To foster a safe environment for learning, however, the redistribution of audio or video recordings of statements or comments from the course to individuals who are not students in the course is prohibited without the express permission of the faculty member and of any students who
are recorded. Unauthorized distribution of such materials is a violation of academic standards and may violate copyright laws and/or privacy rights. Students found to have violated this policy are subject to discipline in accordance with the provisions of Section 200.020 of the Collected
Rules and Regulations of the University of Missouri pertaining to student conduct matters. Faculty and staff found to have violated this policy are subject to discipline in accordance with applicable University policies.

21 December 2011 at 5:00 pm 3 comments

Another Job Opening

| Peter Klein |

Following up Nicolai’s post, here’s another job listing for O&M readers interested in vertical integration and supply-chain issues in food, fiber, and natural resources (forwarded at the  request of Karin Hakelius). Feel free to share similar listings with us and we’ll post them here. (We assume most of you already see the announcements posted at JOE, the BPS and ENT lists of AoM, etc.). (more…)

21 December 2011 at 4:01 pm 3 comments

The First (Unlikely) Significant Entrepreneurial Team?

| Peter Lewin |

Who was the most significant entrepreneur in the bible (old Testament)?

I ask my students this trying to lead them to Joseph. As a result of his interpretation of Pharaoh’s dreams, not only he, but the whole of Egypt reaps enormous profit. He recognizes the meaning in the dreams and counsels Pharaoh on how to profit from impending misfortune — thus also alleviating the misfortune of many others (by investing in times of plenty to cover the looming famine).

But, thinking about this a bit more, one may argue that what we have here is a veritable entrepreneurial team. After all, it is Pharaoh who has the dream, the vision, though he needed Joseph to interpret it. One without the other was nothing — together they were everything. And then there is the fact that that Pharaoh exercises his judgment in believing Joseph. He takes a huge risk and elevates this lowly, condemned Jewish prisoner to the highest office. He puts aside his ego and courageously follows his better judgment. Surely Schumpeter should have been proud, no?

21 December 2011 at 12:16 am 6 comments

What Did Keynes Mean by “Animal Spirits”?

| Peter Klein |

Keynes’s idea that investors are motivated by “animal spirits” has come back into vogue with the recent Keynesian revival, but the term is often misunderstood. Keynes referred not to psychological factors that make investors reluctant to invest, but those that make them invest at all — in the face of deep uncertainty, he thought, only a manic, driven, strong-willed person would put capital at risk. When animal spirits are strong, investment is sufficient to maintain aggregate demand; when they lag, aggregate demand falls, and the economy lapses into depression. (Lord Skidelsky approvingly calls this the “mood swings theory” of business cycles — an idea just crazy enough to spawn a recent NBER paper.)

The new issue of Capitalism and Society features a piece on What Keynes Really Meant on this issue, and it’s a good read:

Animal Spirits Revisited

Alexander Dow, Glasgow Caledonian University
Sheila C. Dow, University of Stirling

The term ‘animal spirits’ has returned to academic and public discourse in a way which departs significantly from the original use of the term by Keynes. The new behavioural economics literature uses the term to refer to a range of behaviour which falls outside what is normally understood as rational. This treatment follows from the mainstream dichotomisation between rationality and irrationality. However, Keynes explained that, given fundamental uncertainty, rationality alone was insufficient to justify action. Animal spirits was the name he gave to the (psychological) urge to action which explained decisions being taken in spite of uncertainty; animal spirits for him were neither rational nor irrational. Nor are they beyond analysis. We explore how the nature and role of animal spirits can vary according to context (as between different sectors, types of firm and within firms). This analysis indicates ways in which policy can promote structural change to strengthen animal spirits in the long term as well as offset short-term weakening in animal spirits.

20 December 2011 at 9:39 am 1 comment

Professor Secrets

| Peter Klein |

Their odd appearance is public, but they have secrets too. Some dislike students. Many wish they ran a really cool Center. And one has a secret identity!

19 December 2011 at 12:31 pm Leave a comment

Job Openings of Interest to O&M Readers

| Nicolai Foss |

It is not yet online, but the University of Paris-Sorbonne is looking for a Full Professor in the Economics of Organization (see the ad text below). Importantly, proficiency in French is not a requirement … “upfront,” at least.

Very apropos (if I may) the Department of Strategic Management and Globalization will be hiring one assistant professor and three associate professors in “strategic and international management” over the next few months. Proficiency in French, or Danish for that matter, is not required at all. The job ads are here. Or, contact me directly on (more…)

18 December 2011 at 12:22 pm 2 comments

Classic Professor Poses

| Peter Klein |

I need a new head-and-shoulders shot for my webpage, and am trying to choose among the classic professorial poses. See samples below. What do you recommend?


In front of books

Holding chalk

In front of chalkboard


Arms folded

At computer

Hands folded

Hands folded (profile)

Holding book

Stern look (keeps 'em away at office hours)

Finger on side of head

16 December 2011 at 1:30 pm 20 comments

Too Freaky

| Peter Klein |

We’ve been somewhat critical on this blog of the Freakonomics approach, but not as critical as Andrew Gelman. Here’s his latest (with Kaiser Fung) in the American Scientist:

On the heels of Freakonomics, the pop-economics or pop-statistics genre has attracted a surge of interest, with more authors adopting an anecdotal, narrative style.

As the authors of statistics-themed books for general audiences, we can attest that Levitt and Dubner’s success is not easily attained. And as teachers of statistics, we recognize the challenge of creating interest in the subject without resorting to clichéd examples such as baseball averages, movie grosses and political polls. The other side of this challenge, though, is presenting ideas in interesting ways without oversimplifying them or misleading readers. We and others have noted a discouraging tendency in the Freakonomics body of work to present speculative or even erroneous claims with an air of certainty. Considering such problems yields useful lessons for those who wish to popularize statistical ideas.

Here’s some additional commentary from Andrew.

My unease with Freakonomics is not its anecdotal, narrative style, but the emphasis on clever puzzles rather than substantive problems, over-reliance on weird instrumental variables, and belief that one can tackle almost any phenomenon with only the barest knowledge of its history and prior literature. Economic theory is indeed quite general and powerful, but not to be thrown around willy-nilly. After all, with great power comes great responsibility.

15 December 2011 at 11:13 am Leave a comment

More on Counterfeiting

| Peter Klein |

We asked in an earlier post if counterfeiting is good for business. Fakes may compete with the real thing, but having them around may also constitute free advertising that boosts demand for the original. Rubik’s Cube distributor Seven Towns Ltd. faces this conundrum, as a WSJ front-pager demonstrates:

One reason . . . a new generation of Rubik’s fanatics can solve the notoriously difficult puzzle in record time: They don’t use Rubik’s Cubes at all, instead substituting souped-up Chinese knockoffs engineered for speed.

The spread of these black-market cubes challenges the London-based company with a marketing brain teaser. Should Seven Towns crack down on the pirated toys? Or piggyback on the phenomenon of competitive speed-cubing?

I for one am happy to have all those cheap knockoffs of my articles and books flooding Chinese markets. Not everyone can afford a Klein® original, after all.

14 December 2011 at 5:18 pm Leave a comment

Theory Construction Bleg

| Peter Klein |

A friend writes:

I am trying to improve the theory writing skills of my doctoral students. . . . [In my field] we don’t often build complicated mathematical models; our theory tends to be more story telling. But nevertheless there is good and bad theory. I have found some papers that discuss how to write theory and what constitutes a theoretical contribution. But I really would like for you to recommend a book on the theory of theory construction. I want to assign chapters from it to my students as well as learn something myself. Since the principles of theory construction are generic, I don’t care what literature the author comes from . The insights will be useful regardless.

What would you suggest?

13 December 2011 at 11:14 pm 9 comments

Strategy and Regulatory Uncertainty

| Peter Klein |

The Fall 2011 issue of California Management Review is a special issue on “Environmental Management and Regulatory Uncertainty.” I don’t think the authors have been reading Robert Higgs but they nonetheless offer some interesting perspectives on nonmarket strategy and political entrepreneurship. I look forward to future issues on Enron and Goldman Sachs (is it yet considered a branch of the Federal government?).

13 December 2011 at 1:23 am Leave a comment

Hotelling Model

| Peter Klein |

I often use the Hotelling model in class to illustrate the frequent clustering of firm and product characteristics. The example of firms locating on a street is boring, so I show the student’s Wired’s classic “Battle for Blue.” I think I’ll start using this one now (via Scott Rouse).

8 December 2011 at 9:21 pm 6 comments


| Peter Klein |

The idea that mainstream macroeconomic thinking focuses at too high a level of aggregation is a frequent complaint on this blog (e.g., here, here, here, and here). Our recent Strategic Organization paper hammers home this point. The level of aggregation is of course a fundamental difference between Keynesian and Austrian theorizing about economic fluctuations. But Keynesian economists don’t seem to recognize this.

The other day I posted a snarky blog entry at The Beacon, responding to a Krugman smear of Hayek (yawn). Today Mario Rizzo pens a more thoughtful response, emphasizing exactly this level-of-analysis issue:

I think the real issue is this. Hayek’s approach attacks, root-and-branch, the macroeconomic way of thinking. It is not simply a challenge to a particular theory of the determinants of mass unemployment, inflation, business cycles and the like. Hayek is not accepting the rules of the game or the parameters of the sub-discipline of modern macroeconomics. Hayek does not want to argue that the government expenditure multiplier is 0.5 instead of 2.0, for example. He does not want to discuss just how much fiscal stimulus should be undertaken and what form it should assume.

In short, he does not want to focus on aggregate spending and aggregate consequences. Hayek’s approach says: Let us pierce the veil of aggregates and look at the distortive effects on relative prices and relative output produced by boom-time credit expansions. Let us look at the distortive effects that booms leave us as we work our way through a recession. Let us concentrate on sustainable lines of expenditure both during the boom and during the road out from the bust.

7 December 2011 at 12:03 pm 6 comments

Is Jim Collins Reading O&M?

| Peter Klein |

Über-guru Jim Collins has taken more than his share of hits here at O&M, mainly for lack of attention to experimental design (1, 2, 3). It appears that his new book,  Great by Choice: Uncertainty, Chaos, and Luck: Why Some Thrive Despite Them All (Harper, 2011), finally tries to address this issue with an attempt at causal identification. If the dust-jacket blurb is to be believed, Great by Choice introduces to the Collins project the concept of treatment and control:

With a team of more than twenty researchers, Collins and Hansen studied companies that rose to greatness — beating their industry indexes by a minimum of ten times over fifteen years — in environments characterized by big forces and rapid shifts that leaders could not predict or control. The research team then contrasted these “10X companies” to a carefully selected set of comparison companies that failed to achieve greatness in similarly extreme environments.

This looks like a step in the right direction, but Collins is still selecting on the dependent variable — in a quasi-experimental design one normally chooses the treatment and control groups based on behaviors, not outcomes. (You don’t compare 100 healthy people to 100 sick people, you compare 100 smokers to 100 otherwise similar nonsmokers or 100 people on a medication to 100 similar people on a placebo to see which get healthy or sick.

For more, see Collins in the NYT or this interview from Knowledge@Wharton. I don’t have the actual book but I tried searching keywords from the Amazon “Look Inside,” and didn’t get any hits for “Knight,” “Schumpeter,” “dynamic capabilities,” or other appropriate key words, so I’m not expecting much theory here.

4 December 2011 at 3:39 pm Leave a comment


Nicolai J. Foss | home | posts
Peter G. Klein | home | posts
Richard Langlois | home | posts
Lasse B. Lien | home | posts


Former Guests | posts


Recent Posts



Our Recent Books

Nicolai J. Foss and Peter G. Klein, Organizing Entrepreneurial Judgment: A New Approach to the Firm (Cambridge University Press, 2012).
Peter G. Klein and Micheal E. Sykuta, eds., The Elgar Companion to Transaction Cost Economics (Edward Elgar, 2010).
Peter G. Klein, The Capitalist and the Entrepreneur: Essays on Organizations and Markets (Mises Institute, 2010).
Richard N. Langlois, The Dynamics of Industrial Capitalism: Schumpeter, Chandler, and the New Economy (Routledge, 2007).
Nicolai J. Foss, Strategy, Economic Organization, and the Knowledge Economy: The Coordination of Firms and Resources (Oxford University Press, 2005).
Raghu Garud, Arun Kumaraswamy, and Richard N. Langlois, eds., Managing in the Modular Age: Architectures, Networks and Organizations (Blackwell, 2003).
Nicolai J. Foss and Peter G. Klein, eds., Entrepreneurship and the Firm: Austrian Perspectives on Economic Organization (Elgar, 2002).
Nicolai J. Foss and Volker Mahnke, eds., Competence, Governance, and Entrepreneurship: Advances in Economic Strategy Research (Oxford, 2000).
Nicolai J. Foss and Paul L. Robertson, eds., Resources, Technology, and Strategy: Explorations in the Resource-based Perspective (Routledge, 2000).


Get every new post delivered to your Inbox.

Join 219 other followers