by From J.-C. Spender There is some heavy stuff in this section – but we cannot get beyond today’s literature on managing as rational decision-making and connect with managers’ practice without engaging uncertainty. All attempts to define uncertainty must fail – by definition, for to define is to take as certain, axiomatic. Those who see uncertainty in terms of probability stand on the certainty of population statistics. Knight saw such modified certainty as ‘risk’. Yes, risk management is important, just as is distinguishing knowing definitively from knowing statistically. But the difference here is methodological and neither mode grasps Knightian uncertainty. Probability is logical/nomothetic, computable. In contrast Knight’s notion was implicitly idiographic, the sense of an absence of
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from J.-C. Spender
There is some heavy stuff in this section – but we cannot get beyond today’s literature on managing as rational decision-making and connect with managers’ practice without engaging uncertainty. All attempts to define uncertainty must fail – by definition, for to define is to take as certain, axiomatic. Those who see uncertainty in terms of probability stand on the certainty of population statistics. Knight saw such modified certainty as ‘risk’. Yes, risk management is important, just as is distinguishing knowing definitively from knowing statistically. But the difference here is methodological and neither mode grasps Knightian uncertainty. Probability is logical/nomothetic, computable. In contrast Knight’s notion was implicitly idiographic, the sense of an absence of certainty arising from an ideographic experience of not-knowing. Something failed, what was expected did not occur – why not? Was the causal sequence (nomothetic) adopted wrong, or did the fault lie with the situation’s ideographic characterization – its initial conditions etc.? Such questions must still be expressed in language, thus standing on what is known. Like us all, Knight struggled with Aristotle’s nomothetic/idiographic distinction, the failure to relate knowing and experiencing, the inevitable separation between the totality and immediacy of living versus explaining it with abstract concepts.
Knight studied science, religion, and philosophy before switching to economics. He knew the limits to human knowing have been explored for millennia in philosophy, religion, theater, and every other form of the arts, e.g. figure/ground reversal, Velázquez’s Las Meninas, or the confusions of Midsummer Night’s Dream. One striking medieval metaphor is that ‘it is not given to Man to enter God’s Mind’, to arrive at the Archimedean Fulcrum from where everything is certain and things are what they seem to be. Coase was one of the few who carried Knight’s intuition about uncertainty in economics further. But neither Knight nor Coase wrote much about managing. We must dig deeper. The nomothetic/idiographic distinction points to a state of not-knowing that awaits integrating the parts into a reasoned practice that resolves the distinction. This is the ‘micro foundation’ or ‘micro-institutionalization process’ of value creation. Something similar happens in the natural sciences, leading to the tectonic shifts in thinking Thomas Kuhn called ‘paradigm shifts’. Einstein achieved one by bringing physicists’ notion of mass together with their seemingly unrelated notion of energy – changing both and paving the way for nuclear energy. Until synthesis happens experience keeps reminding us that we know multiple things in multiple ways, none for certain. Our knowledge suffers all manner of imperfections, contradictions, and fragmentation. Crucially, these defects are not in the things we seek to know. These may well be ‘real’ – coherent, logically constructed, existing, simply ‘there’ as ‘realists’ believe. Rather the defects in our knowledge are aspects of how we know. We cannot know anything for certain or objectively. Knowing is subjective, an aspect of us, even when we claim to know facts. Knowledge is a human artifact, an aspect of consciousness. We are the source of all the uncertainties we can be aware of. The effective manager/entrepreneur’s special talent is to dig into these for those that can be engaged with imaginative practice to their benefit – mini-Einsteins of the economy.
The most familiar mode of not-knowing is being ‘ignorant’ of what can be known, a mark of our scientific era. In prior times the most pressing forms of not-knowing were often religious, such as fearing God’s vengeance, unknowable. Ignorance has been brought to the top of our list of uncertainties by our society’s turn towards science as the ‘one true mode of knowing’. Note science sets out presuming everything worth knowing is knowable, independent of our knowing and researching, that there is an unshakeable Truth. The Scientific Method guides us to overcome our ignorance of this Truth. Science-talk has become privileged in our era. The Internet and media show big money can be made informing people about things they believe knowable. Yet we also see ‘fake news’ and hope the less-privileged media talk reports the Truth rather than Falsity.
Dealing with others’ ignorance is not the only or even the most important entrepreneurial opportunity in our polity. In practice, our knowing and not-knowing is vastly more complicated than the notion of objective Truth or its absence allows. Aristotle reminds us ignorance and incommensurability are completely different types of not-knowing. Again, our enthusiasm for science tempts us to collapse the difference, to treat incommensurability as type of ignorance, presuming we can arrive at the Truth by integrating known facts. But, as suggested earlier, this is ironic – it eventually evacuates the idea of human knowing, rendering knowledge irrelevant, rather than moving us towards Truth.
Karl Popper’s falsification is a curious interpretation of the nomothetic/idiographic distinction that presumes the possibility of a scientific (logical) connection between a theory and an experimental finding. Alfred Ayer’s slap-down showed falsification and verification were not asymmetric, one black swan does not disprove the claim ‘all swans are white’. It merely throws the claim into question. Our sense of knowing is ‘irritated’. When the experimental finding is presented as an application of the theory under test, it is tautological; the result cannot but confirm the theory. Popper’s argument was appealing, but all informative experimentation must be knowledge-independent of the theory being tested, in which case the relation between the theory under test (the hypothesis) and the experimental result is problematic, incommensurable, not conclusive. Rather it is a complex kind of not-knowing that calls forth the experimenter’s judgment about ‘what really happened’.
The distinction between incommensurability and ignorance is no philosophical word game. Resolving uncertainty by integrating such fragments into shapeable practice is the entrepreneur’s route to value creation. Enterprising managers must understand/sense uncertainty enough to engage it. They can never control it completely; the outcome cannot be fully predicted. Key is the observation that experienced managers engage ignorance and incommensurability with very different practices. Ignorance of the presumed knowable leads on to ‘research’. Incommensurability calls for discussion, negotiation, reconciliation. Capable managers’ ability to characterize the situation’s uncertainty and thereby choose an appropriate practice seems natural and obvious. Managers are effective when they can ‘read’ the situation, ‘recognize’ uncertainties, and ‘diagnose’ them into categories of practice. Recognition is an act of imagination. Note the difficulty of ‘teaching’ computers to recognize, for they have no imagination and can only ‘match’ the data they ‘know’ in memory with what they know through ’seeing’, even when aided by algorithms that speed the memory search. Academics who admit only one type of uncertainty, ignorance, blind themselves to managers’ diagnostic and entrepreneurial skills.
Again, ignorance presumes the prior existence of what is knowable, a coherent and logically constructed ‘objective reality’ that exists already and is unaffected by our research practice. It is as if humankind is characterized as a Single Supreme Scientist, probing Nature with unambiguous yes/no questions. Such science admits no incommensurabilities, everything is presumed equally real and explainable. But the Scientific Method is not our only method of dealing with not-knowing. Analyzing managing changes completely when we admit incommensurability, the fragmented nature of our imperfect knowing, as distinct from ignorance of the perfectly known. We address incommensurability by debating alternative ‘knowns’. Note how people and their subjectivity are drawn in. The ‘negotiation’ process is not ‘objective’ because it hinges on the participants’ particulars, their specific not-knowing. There is no general model – implying there can be no scientific model of managing or ‘the firm’ if negotiation is its fundamental process. Yes, some propose rigorous theories of negotiation but must set out by defining (axiomatizing) the participants and their choosing behaviors, claiming to know people, to have a true theory of the individual. Poets know better. The human individual is not knowable to us; we do not know ourselves, let alone anyone else. Our imagination indicates what we do not know. Consequently, real interaction is more complex, we ask advice, we reflect, allowing some dialectical interplay between alternatives. The practice of dealing with incommensurability, the going back and forth between possibilities, is very different from dealing with ignorance and the scientific back and forth between hypothesis and evidence. Yet both processes are dynamic, implying the analysis of value creation must stand on dynamic models/ideas.
Managers must diagnose before instructing action, just as physicians must determine the patient’s condition before prescribing professionally. Is this an A-situation or a B-situation? Managers’ (and physicians’) diagnostic skills vary widely. Even with the best science, gathering data and reducing ignorance seldom leads to definitive doubt-free conclusions. Some uncertainty remains to be ‘diagnosed’. Good diagnosticians are highly regarded for good reason; their choices often push the boundaries of professional practice – famously in the case of puerperal fever. We might debate ‘internally’, but differences in characterization may arise ‘externally’, such as agent C and agent D disagreeing over value. Here a third mode of uncertainty appears as ‘indeterminacy’, the difficulty of knowing how D will respond to C’s move. Note time and expectation enter the analysis. In circumstances of indeterminacy the manager’s choice of mindful practice is often ‘negotiation’. Rather than researching (scientifically) a presumed reality, managers proceed by bringing contrasting but different ideas, knowns, and doubts together. Entrepreneurship and value creation is more often driven by synthesizing practice than by scientific research. This essay concludes by proposing ‘the firm’ as a managed complex of human interaction that grasps targeted idiographic uncertainties evident in the socio-economy. The resulting practice may lead to economic value creation.
To conclude this section, the three types of uncertainty noted – ignorance, incommensurability, indeterminacy – must be complemented by a fourth – ‘irrelevance’. All human knowledge is held in language. Negotiation requires sharing language. Likewise, the entrepreneur must create a language that enables hir to consummate the complex or bundle of contracts that bring the business into economic existence, no longer just an idea beyond the real world, rather made ready-to-hand to be ‘set in motion’ as Schumpeter suggested. Managers need a language specific to the firm that enables them to issue directions and evaluate the consequences of the motions they generate. There is no nomothetic (universal or formal) language. Even when this language is idiographic and identified/constructed, it may not relate adequately to the ideas and actions necessary for the firm to succeed, and so be irrelevant. One downside of using consultants is that their language, embodied in their ‘strategic tools’, may prove irrelevant to the resources and practices necessary for their client’s success. Likewise business meetings, often considered a superfluous part of corporate life, are often crucial loci for adapting, updating, and promulgating new business language. Again, negotiation is often the most effective route to improvement, calling for managers to engage in skilled listening and persuasion. But sometimes new language does not lead to improvement.
The next section moves towards the practice of engaging uncertainty. The section above claims some grasp of specific uncertainties is necessary to understanding a firm and managing it. Science and its methods are focused on engaging ignorance of the general, one mode of value creation. But managers need also to be adept with incommensurability, indeterminacy, and irrelevance, and consequently with shaping, motivating, and empowering the practices of others. Even in our technology-penetrated era, science seldom drives business success. Schumpeter insisted it was the business application of science that shifts the economy from creative destruction to economic growth, not science’s progress alone.
J.-C. Spender, “Managing the engines of value-creation”
real-world economics review, issue no. 83, 20 March 2018, pp. 99-115, http://www.paecon.net/PAEReview/issue83/Spender83.pdf