Uncertainty and decision making in small firms

Abstract

ABSTRACT Effectuation has been acknowledged to be the most appropriate decision-making logic during times of uncertainty. Yet it has been constantly overlooked in the existing literature that uncertainty is never constant. To fill this gap, we study how the application of effectuation varies as uncertainty changes. Our findings suggest that when entrepreneurs of small businesses perceive uncertainty to increase from low to middle levels, they will reduce application of effectual logics in order to protect their gains. When they perceive uncertainty to increase from middle to extreme levels, however, they will increase adoption of effectual logics in order to ensure survival. More interestingly, for firms with higher entrepreneurial orientation (EO), the curvilinear effect of uncertainty on effectual logics will be dampened. We suspect this is due to the fact that high EO firms rely on their entrepreneurial strategic posture to compete in the industry, rather than let uncertainty dictate how they proceed.