The Judgment-Based View of Entrepreneurship: Accomplishments, Challenges, New Directions

29 May 2015 at 1:11 pm 10 comments

| Peter Klein |

JOIWe have been using the term “judgment-based view” to describe our approach to entrepreneurship. The term “judgment” of course comes from Knight, and was used also by Mises, Casson, and many others. Contemporary entrepreneurship research is still dominated by the opportunity-discovery view, but increasing criticism from the judgement-based view, the effectuation and bricolage approaches, the opportunity-creation view, and other perspectives is challenging the notion that profit opportunities exist, waiting to be discovered, and even that “opportunity” is a meaningful construct at all.

Nicolai and I organized a themed section in the Journal of Institutional Economics on the judgment-based view with papers from Niklas Halberg, Jeff McMullen, and Andrew Godley and Mark Casson. Our introduction reviews the increasing importance of entrepreneurship in economics and management research, explains the relationship between entrepreneurship and economic organization, discusses some microfoundations of judgment, and distinguishes judgment from luck and judgment per se from good or skilled judgments.

The papers are available electronically at the links above, and in hardcopy in the Fall 2015 issue of JOIE.

Entry filed under: - Klein -, Entrepreneurship, New Institutional Economics, Theory of the Firm.

Artistic and Entrepreneurial Ecosystems Sleeping Beauties

10 Comments Add your own

  • 1. Bart Doorneweert  |  29 May 2015 at 2:27 pm

    Opportunity is passive. You have to activate things to test whether your delusion of an idea means anything. Judgment is too reflective a term, implying thinking, contemplating, and weighing evidence before doing something.

    Entrepreneurs define really dirty hypotheses and figure out a way to test them, even before they’ve really defined them, actually. And when the experiment blows up in their face, and yet they still experience pleasure, they just somehow decide not to leave it at that.

    It’s the caveman’s way of making decisions to explore how the savannah could be of use to them. Entrepreneurship theory still has some way to go…

  • 2. Peter Klein  |  29 May 2015 at 2:31 pm

    Thanks Bart. As we discuss in our introduction, the term “judgment” can be misleading because, in everyday usage, it connotes exactly the behaviors you describe — thinking, contemplating, weighing evidence. Judgment per se, as Knight (and we) use the term, does not require this. It is simply decision-making under uncertainty in the absence of a formal model or decision rule. Other words might be intuition, instinct, or gut feeling. We choose to retain the word “judgment,” following Knight and Mises, while recognizing this potential source of confusion. As we explain in the essay, there are many possible underlying cognitive and behavioral process consistent with judgment as we use the term.

  • 3. Bart Doorneweert  |  29 May 2015 at 2:56 pm

    Thanks for the reply, Peter! A friend of mine, a true caveman decision maker, is writing a book called decision hacks, with insights like these:
    There are decision rules, or rather, the rule is: why haven’t you made a decision and done something yet!
    I really, really like the article by Heath and Tversky (1991) on ambiguity and belief It’s the closest explanation I’ve seen.
    A pity that has not been taken into the realm of entrepreneurial decision making. At least, not to my knowledge. I’ve been the papers for quite a while.

  • 4. Divine Economy Consulting  |  29 May 2015 at 5:31 pm

    Refinement is always good but discovery without judgment is as unsettling as judgment without discovery when thinking about entrepreneurship. Both are implied. Sometimes entrepreneurship is mostly discovery – for example, pure entrepreneurship – while at other times judgment is the key to bringing entrepreneurship to fruition. Entrepreneurial application of capital appears to be mostly an act of judgment however without appreciating the discovery component it seems that the neoclassical mentality of the fictitious ‘economic man’ (Homo oeconomicus) is being preferred. If both discovery and judgment cannot be seen as interconnected and intermingled then it seems that these must be viewed as attempts to make empirical; out of what are subjective human beings.

  • 5. Bruno Mynthi Showers  |  1 June 2015 at 11:03 am

    I think, drawing on Mises, that any action requires some sort of contemplation or reflection to be considered an action, rather than a behavior. So insofar as entrepreneurship is an action, it requires some component of judgment, although this judgment may be implicit or not well-defined.

    And again drawing on Mises (but c.f. Alfred Schutz in Phenomenology of the Social World) the idea of an existing “profit opportunity” which we discover becomes at best redundant when you realize that profit is a mental phenomenon. It’s not that people don’t discover novel information about the world which they exploit, but rather that that exploitation itself requires a mental construct which is essential to understanding the whole process.

    Of course, I can’t figure out how to get to the full text of any of these articles, so I could be way off… Am I an idiot, or is any one else having this problem? Help me, Dr. Klein!

  • 6. Peter Klein  |  1 June 2015 at 11:11 am

    Unfortunately they are behind the publisher’s firewall, so a JOIE subscription is required. But send me an email and I’ll be happy to send you a private copy.

  • 7. Dick Langlois  |  2 June 2015 at 10:35 am

    A membership in WINIR ( gets you online access to JOIE!

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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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