MGMT8015 Chap.2 Causation, Effectuation, Discovery and Creation
Causation, Effectuation, Discovery and Creation
Two logics of decision-making
Causation begins with a goal and chooses the means to reach it; effectuation begins with the means in hand and lets possible ends emerge.
The course treats them as complementary lenses rather than rivals.
Five principles
Effectuation is summarised in Bird-in-Hand, Affordable Loss, Crazy Quilt, Lemonade and Pilot-in-the-Plane, each describing a habit of founders who act before the future can be forecast.
Where opportunities come from
Alvarez and Barney’s discovery and creation views explain which logic fits: opportunities that exist and wait to be found suit planning, while opportunities formed through action suit effectual moves.
Common mistakes
Students often treat effectuation as having no plan at all; it does plan, but from means and acceptable losses rather than from a forecast.
Another slip is to name a principle without pointing to the behaviour that shows it, which earns little in a written answer and invites the wrong option in a single-answer question.
What this chapter covers
- 01
Causation: goal first, then means
- 02
Effectuation: means first, ends emerge
- 03
The five effectuation principles
- 04
Affordable loss versus expected return
- 05
Opportunity discovery versus creation
- 06
Choosing the logic that fits the context
- 07
Recognising each principle from a founder’s behaviour
Worked example · free
Sort a food-truck founder’s choices by logic
- 1Starting from her van, skills and contacts shows Bird-in-Hand.
- 1Capping spending at what she can lose shows Affordable Loss rather than expected return.
- 1The brewery committing a site and reshaping the menu shows Crazy Quilt.
- 1Turning the cancelled festival into an office sale shows Lemonade, so the overall pattern is effectual.
Key terms
- Causation
- A logic of decision-making that starts from a given goal and selects the means expected to reach it.
- Bird-in-Hand Principle
- The effectuation principle of starting from your existing means: who you are, what you know and whom you know.
- Opportunity Discovery
- The view that opportunities already exist in the market and are found by alert, searching entrepreneurs.
- Opportunity Creation
- The view that opportunities are formed through entrepreneurs’ own actions and the reactions those actions provoke.
- Crazy Quilt Principle
- The effectuation principle of building partnerships with stakeholders who commit resources, rather than focusing on competitors.
Causation, Effectuation, Discovery and Creation FAQ
How is affordable loss different from expected return?
Expected-return reasoning forecasts the payoff of each option and backs the best one. Affordable loss works the other way: the founder first decides how much she is willing to lose, commits only that, and accepts it may be lost. It caps the downside instead of maximising a predicted upside, which is useful when forecasts are unreliable.
Is effectuation better than causation?
No. The Week 12 summary calls them complementary lenses and asks you to use the logic that fits the context. Effectuation suits situations where the future cannot be predicted from data; causation suits stable markets with known options. Many ventures start effectually and become more causal as evidence builds up.
What are the five principles of effectuation?
Bird-in-Hand means starting with your means. Affordable Loss limits the downside rather than chasing the upside. Crazy Quilt builds partnerships instead of focusing on competition. Lemonade uses surprises as opportunities. Pilot-in-the-Plane focuses on what you can control rather than trying to predict the future.
Where does the idea of effectuation come from?
The course credits effectuation to Saras Sarasvathy’s work in 2001, and Fisher’s 2012 article comparing effectuation, causation and bricolage is on the Week 3 reading list. Fisher compares how founders actually behave under each approach, which is why the course stresses recognising the behaviour, not only the label.
What does Pilot-in-the-Plane mean?
It is the effectuation principle of control rather than prediction. Instead of trying to forecast the future and plan for it, the founder concentrates on the parts of the future that their own actions can shape, such as which partners to bring in and which small experiments to run next.
Exam move
Make a two-column table headed goal-first and means-first. Read a founder story in the business press and place each decision in a column with the principle it shows. Finish by deciding whether the founder treated the opportunity as discovered or created, and whether their logic fitted that view.
As a final check, explain to a classmate why the same founder might reasonably switch from effectual to causal reasoning once a venture has a few years of sales data. Practise spotting an answer option that reverses the direction of the two logics.
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