Uncertainty

Author: Marius Kahlert, UTwente

Uncertainty refers to a future state or quality which is unpredictable, unknown or doubtful. Miliken (1987) differentiates between state uncertainty, effect uncertainty and response uncertainty. State uncertainty is the perceived unpredictability of external developments. Effect uncertainty is the inability to predict the influence of certain changes in the environment on the organization. Response uncertainty is the deficit of insights of response actions and the inability to predict the likely effects of a response choice.

Due to the novelty concerned in entrepreneurial actions, uncertainty is of high relevance in the process of identifying and pursuing opportunities. Previous research deals with two different streams of uncertainty in entrepreneurship. Kirzner (1979) discusses perceived uncertainty as a barrier between potential entrepreneurs and entrepreneurial action. Douglas and Shepherd (2000) assess the willingness to bear this uncertainty as a factor that distinguishes those who decide to act entrepreneurial from those who do not. McMullen and Shepherd (2006) continue with both streams and argue that uncertainty (in the form of doubt) prevents entrepreneurial action. This is based on the difference of knowledge on the one hand, and the difference in motivation on the other. Entrepreneurs minimize uncertainty by accumulating previous knowledge and experience, acquiring additional relevant knowledge and assessing the feasibility and desirability of a business opportunity. Therefore, the ability to bear with uncertainty and to make rational judgements is considered to be a key characteristic of entrepreneurs.

Sources: Douglas, E., & Shepherd, D. A. (2000). Entrepreneurship as a utility maximizing response. Journal of Business Venturing, 15, 393-410.

Kirzner, I. M. (1979). Perception, opportunity, and profit: Studies in the theory of entrepreneurship. Chicago: University of Chicago Press.

McMullen, J. S. & Shepherd, D. A. (2006). Entrepreneurial action and the role of uncertainty in the theory of the entrepreneur.  Academy of Management Review 31(1), 132-152.

Milliken, F. J. (1987). Three types of perceived uncertainty about the environment: State, effect, and response uncertainty. Academy of Management Review, 12, 133–143.

Oxford University Press. (2015). Uncertainty - definition of uncertainty in English from the Oxford dictionary. Retrieved November 24, 2015, from http://www.oxforddictionaries.com/definition/english/uncertainty

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