Uncertainty and entrepreneurial judgment during a health crisis

• Published date: 01 December 2020
• Author: Peter G. Klein
• Date: 01 December 2020
• DOI: http://doi.org/10.1002/sej.1382

REFLECTIVE PIECE

Uncertainty and entrepreneurial judgment during

a health crisis

Peter G. Klein

Baylor University, Waco, Texas

Entrepreneurial action is fraught with uncertainty—investments must be made before revenues, and potential profits,

have materialized, but after products and services have been designed, produced, and delivered. And yet, some of

the leading theoretical frameworks in the entrepreneurship literature downplay uncertainty. Israel Kirzner's influen-

tial work depicts entrepreneurs as people who are particularly alert to future market conditions and who first “dis-

cover”opportunities for profit. Joseph Schumpeter's entrepreneurs engage in creative destruction, sweeping away

old ways of doing business while introducing new products, new production and organizational methods, new mar-

kets, and so on. In these approaches, the entrepreneur knows what she wants and goes out and gets it.

Even if these approaches makes sense in “normal”times (which I do not believe), they do not seem to describe

doing business in a world of rapid technological change, social disruption, economic volatility, or a major health crisis.

The emergence of Covid-19 in early 2020 brought radical, unanticipated economic, political, and social changes. In

most parts of the world, schools, business, and workplaces were closed (voluntarily or involuntarily); people sheltered

in their homes; and bankruptcies and unemployment soared. Governments and central banks announced unprece-

dented stimulus and subsidy packages but many companies large and small, operating with razor-thin cash reserves,

are struggling to survive.

How should entrepreneurs think, plan, and act in times of crisis? How do they handle unanticipated changes? To

answer, it helps to think about how entrepreneurs deal with uncertainty more generally. My 2008 article “Opportu-

nity Discovery, Entrepreneurial Action, and Economic Organization”proposes a reconceptualization of entrepreneur-

ship not as the discovery of preexisting profit opportunities but as action under uncertainty. Frank Knight famously

distinguished uncertainty from probabilistic risk. In a risky situation, I do not know what will happen next, but I know

the set of possible outcomes and the likelihood of each, so I can use probabilistic reasoning to take the action that

maximizes my expected gain (or, depending on my mood, that minimizes my expected loss). Under uncertainty, I can-

not imagine even the set of possible outcomes, let alone the probabilities, so I must rely on intuition, gut feeling, or

understanding to anticipate the uncertain future.

Knight used the term “judgment”to describe the act of decision-making under uncertainty—that is, taking

forward-looking actions without the aid of a formal model or decision rule. My article builds on Knight's ideas to

develop what Nicolai Foss and I have called a “judgment-based approach”to entrepreneurship (Foss & Klein, 2012,

2020). This paper has stimulated new research on uncertainty, resource assembly, and governance—issues central to

strategic entrepreneurship.

In a world of Knightian uncertainty, and heterogeneous capital resources with attributes that are subjectively

perceived and unknowable ex ante, some agency must bear the responsibility of owning, controlling, deploying, and

redeploying these resources in the service of consumer wants. That is the role of the entrepreneur—to combine and

DOI: 10.1002/sej.1382

© 2020 Strategic Management Society

Strategic Entrepreneurship Journal. 2020;14:563–565. wileyonlinelibrary.com/journal/sej 563