Micro-Foundations and Realism

16 November 2006 at 3:42 pm Leave a comment

| Nicolai Foss |

As readers of O&M know, I have often endorsed the search for the badly missing micro-foundations in management research (e.g., here, here and here). Building micro-foundations means providing accounts (whether formal or verbal-logical) of how human action and interaction produce collective outcomes (whether intended or unintended).

To me such an approach is inherently mechanism-oriented. Accordingly, I tend to think of methodological individualism and mechanismic explanation as close philosophical allies. I also think that in terms of theorizing, attention to micro-mechanisms rooted in individual action and interaction requires close attention to behavioral assumptions. Apropos Milton Friedman the one part of his thinking that I have never made peace with is his methodological instrumentalism.

Until recently, I thought that virtually nobody in management research — with the exception of Teppo Felin — entertained similar views (OK — a bit over the top, but not much), until, that is, the advent of the November issue of  the Strategic Management Journal features an article, “Behavioral Assumptions and Theory Development: The Case of Transaction Cost Economics,” by Eric Tsang that is explicit about how behavioral assumptions link to realistic explanation. (I just noticed that Tsang also has an earlier paper on critical realism).  

Here is the abstract:

From a critical realist perspective, I discuss the role played by behavioral assumptions in organization theories, and use transaction cost economics as an illustrative example. Core behavioral assumptions often constitute the foundation of mechanismic explanations of a theory, and thus should play a pivotal role in theory development. I distinguish between assumption-based and assumption-omitted theory testing, and show that empirical research in transaction cost economics has been dominated by assumption-omitted testing. To establish a solid foundation for a new theory, management researchers should pay more attention to assumption-based testing.

There are a couple of things in Tsang’s paper that makes me a bit uneasy. Why, for example, endorse critical realism (the specific version of scientific realism associated with Roy Bhaskar — which involves the problematic notion that structures can be causal agents) and not just realism? Why claim it is a “mainstream philosophical perspective in management research,” when this is hardly the case? There may not be much in the paper that will be new to a frequent reader of the Journal of Economic Methodology. But on the whole it is good to see this kind of research in the pages of the Strategic Management Journal. 

Entry filed under: - Foss -, Methods/Methodology/Theory of Science, Recommended Reading.

Milton Friedman Has Died Friedman on Method

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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).

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