Effectual Reasoning

There are many different types of reasoning. Causal and effectual reasoning initially appear as polar opposites. Causal reasoning begins with a pre-determined goal and a given set of means, and seeks to identify the optimal methodology for achieving the desired goal.

Effectual reasoning, however, does not begin with a specific goal. Instead, it begins with a given set of means and allows goals to emerge over time through the imagination and diverse aspirations of the thinker. Means include the capabilities of the thinker, their education, experience, expertise, social and professional contacts among other assets.

Effectual reasoning and causal reasoning rests on fundamentally different assumptions about the future. Causal reasoning believes that to the extent we can predict the future, we can control it. That is why those who exercise causal reasoning spend enormous resources on developing predictive models. Effectual reasoning, however, believes that to the extent we can control the future, we do not need to predict it. Consequently, causal reasoning comes to life through careful planning (thought) whereas effectual reasoning comes to life through execution (action).

There are other differences between causal reasoning and effectual reasoning specifically relating uncertainty to opportunity. Causal reasoning focuses on expected returns, whereas effectual reasoning focuses on affordable loss. Causal reasoning focuses on competitive analysis, whereas effectual reasoning focuses on building strategic partnerships. Causal reasoning focuses on exploitation of assets, whereas effectual reasoning focuses on leveraging of contingencies.

From our previous post on Thought, Action, Praxis one should conclude that causal and effectual reasoning, while initially appearing as polar opposites, are in fact dialectically related. The dichotomy appears most pronounced regarding goals. Strategy begins with goals, since strategy is fundamentally how to turn your goals into reality. However, goals should influence how we appraise a particular situation, but what we learn about a situation may change the nature of our goals. Goals can affect the way we evaluate potential courses of action, but this evaluation can also provide us with information that can help us set better goals. Similar analysis can be conducted on the other differences between causal and effectual reasoning.

Studies have shown that entrepreneurs are particularly prone to use effectual reasoning, whereas most managers use causal reasoning. Effectual reasoning has advantages over causal reasoning in the early stages of a new venture or in chaotic environments, whereas causal reasoning is better suited to established firms or in controlled environments. The best entrepreneurs ought to be capable of using both and so should the best strategists.