Creativity in a theory of entrepreneurship
| Date | 02 December 2019 |
| DOI | https://doi.org/10.1108/JEPP-D-18-00084 |
| Pages | 442-469 |
| Published date | 02 December 2019 |
| Author | James Lee Caton |
| Subject Matter | Strategy,Entrepreneurship,Business climate/policy |
Creativity in a theory
of entrepreneurship
James Lee Caton
Department of Agribusiness and Applied Economics, Fargo, North Dakota, USA
Abstract
Purpose –The purpose of this paper is to integrate a detailed theory of perception and action with a theory
of entrepreneurship. It considers how new knowledge is developed by entrepreneurs and how the level of
creativity is regulated by a competitive system. It also shows how new knowledge may create value for the
innovator as well as for other entrepreneurs in the system.
Design/methodology/approach –The theory builds on existing literature on creativity and
entrepreneurship. It considers how transformation of mental technologies occurs at the individual and
system levels, and how this transformation influences value creation.
Findings –Under a competitive system, the level of creativity is regulated by the need for new ways of doing
things. Periods of crisis wherein old means of coordination begin to fail often precipitat ean increa sein crea tivity,
whereas a lack of crisis often allows the system to settle to a stable equilibrium with lower levels of creativity.
Research limitations/implications –The combination of methodology and methods facilitates a
description of discrete building blocks that guide perception and enable creativity. This framing enables
consideration of how a changing set of knowledge interacts with a system of prices.
Practical implications –Policy makers must take care not to encumber markets with costs that
unnecessarily constrain creativity, as experimentation makes the economic system robust to shocks.
Social implications –This work provides a framing of cognition that allows for a linking of agent
understanding that permits explicit description of coordination between agents. It relates perception and ends
of the individual to constraints enforced by the social system.
Originality/value –As far as the author is concerned, no other work ties together a robust framing of
cognition with computational simulation of market processes. This research deepens understanding in
multiple fields, most prominently for agent-based modeling and entrepreneurship.
Keywords Heuristics, Entrepreneurship, Complexity, Epistemology, Agent-based model
Paper type Research paper
Introduction
Creativity describes an act that redefines categories of analysis or recombines them to
produce an object, process or perspective that did not exist before the creative act. Such a
creative act can transform a medium for understanding, such as with a piece of art or in the
development of a new or transformation of an existing field of thought. It may attempt to
reorder one’s beliefs or surroundings according to a different ordering principle than was
previously submitted to.
Creativity is integral to the entrepreneurial processes, but it is notoriously difficult to
model. Traditional equilibrium modeling leaves the entrepreneur and the institutions
navigated by him/her in the background (Kirzner, 1963; Wagner 2010). Although there
exists interest in developing an economic framework that integrates creativity into analysis
(Koppl et al., 2015), the path to a formal model of creativity has remained non-obvious.
This paper presents a framework for modeling creativity and agent cognition in a theory of
entrepreneurship. It applies this framework in an agent-based model in which agent decision
making is guided by heuristics and allowed to evolve through experimentation and sharing of
knowledge. Agent-based modeling presents an opportunity to integrate creativity into the core
Journal of Entrepreneurship and
Public Policy
Vol. 8 No. 4, 2019
pp. 442-469
© Emerald PublishingLimited
2045-2101
DOI 10.1108/JEPP-D-18-00084
Received 20 November 2018
Revised 14 January 2019
Accepted 14 January 2019
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/2045-2101.htm
The author owe gratitude to many for their supporting the development of ideas present in this article.
An incomplete list includes Richard Wagner, Peter Boettke, Robert Axtell, Abigail Deveraux, Cameron
Harwick, Alex Salter, the participants at the Texas Tech Free Market Institute's Research Workshop,
Pavel Kuchar, Erwin Dekker, my wife Ingrid, and the late Ion Sterpan. All errors herein are my own.
442
JEPP
8,4
of a model of economic activity. Muchdiscussionhasfocusedonthispotentialwithoutapplying
the insight or framework to an agent-based model (Nell, 2010; Seagren, 2011; Gangotena, 2017).
Newell and Holian (2017) included creativity in an agent-based model in terms of product
diversity, but they did not integrate an evolutionary paradigm into their model. The author used
an evolutionary agent-based model to show that the level of creativity is endogenously
regulated within a competitive economic system. Before presenting the framework and model,
I consider the existing literature on entrepreneurship, knowledge and creativity.
A review of entrepreneurship, knowledge, creativity in economic theory
Entrepreneurship and knowledge
The entrepreneur and entrepreneurial adaptation are non-existent in the core model of the
neoclassical economic theory (Baumol, 1968; Kirzner,1963; Buchanan and Vanberg, 1991), as
equilibrium is not a result, but an assumption of the model (Debreu, 1959; Arrow and Hahn,
1971; Muth, 1961; Fama, 1970; Axtell, 2007, p. 107; Wagner, 2010). Agent knowledge, which
consists largely of rules that aid interpretation of and interaction with objects and processes
present in one’s context and in light of one’s ends, is reduced to a utility function. The
traditionaleconomic man is left to make decisions in responseto changing prices accordingto
the calculus of optimization[1]. Over the course of the last half century, alternate framings of
the economic agent have been generated (Simon, 1969, 1972, 1974, 1979; Hayek, 1962; North,
1990, 2005; Kahnem an, 2011; Koppl, 2002; S mith, 2003; Gigerenz er, 2008), but these hav e not
been synthesized in a manner that joins a systematic theory with felicitous modeling
comparable to econometric analysis or dynamic stochastic general equilibrium models.
In approaching this challenge, it is helpful to consider the essence of entrepreneurship.
All human actions have an entrepreneurial element. We apply and transform given means
with intention of creating and attaining value. Such an act requires creativity, as it is not
clear how means should be employed and which ends should be pursued (Sarasvathy, 2001).
The pursuit of value occurs in an environment that is bound to change over time, often in
ways that are unpredictable. Frank Knight (1921/1964) identified the entrepreneurial role as
one of overcoming uncertainty that may otherwise prevent him/her and others from
realizing his/her ends. The entrepreneur employs means to create value in situations about
which he/she has only partial knowledge.
Humans must adjust to a world that is continually chang ing. This change is driven by
physical circumstances as well as human agents themselves. These agents are also a part of the
environment and their attributes can also change. Reflecting on this, Buchanan (1979)
reconsidered Heraclitus claim that a man does not step in the same river twice because the river
is not the same river and neither is he the same man (p. 257). An essential characteristic of
being human is to change one’s own beliefs or, more fundamentally, one’s own character. These
are reflected in a change in his/her pattern of action. To adapt to changing circumstances
simply by one’s own effort is a uniquely human characteristic and is key to overcome
uncertainty. Human beings and their understanding are objects of their own analysis.
Together, the framework and model presented here investigate changing strategies and
their correlates in cognitive structure[2]. The human agent’s understanding of the
environment is embedded in a strategy: patterns of action aimed at some end (Nelson and
Winter, 1982)[3]. Most strategies can be defined in terms of context-dependent rules that
guide agent perception and action (Hayek, 1962). Using these strategies, agents interact with
the world, both responding to changes in it and influencing their evolution.
This can be compared with the traditional framework, perhaps best embodied by Stigler
and Becker (1977), that attempts to explain all actions in terms of response to changing
prices. They argued, “the hypothesis of stable tastes yielded more useful predictions”than
alternate hypotheses about apparently irrational behavior such as addiction (89). The
usefulness of the perspective is undeniable. Even so, a perspective that submits action solely
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Creativity in a
theory of
entrepreneurship
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