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Frank Knight and the cognitive diversity of entrepreneurship

Published online by Cambridge University Press:  19 May 2021

Malte F. Dold Open the ORCID record for Malte F. Dold [Opens in a new window]  and
Mario J. Rizzo Open the ORCID record for Mario J. Rizzo [Opens in a new window]
Malte F. Dold*
Affiliation:
Economics Department, Pomona College, 425 N. College Avenue, Claremont, CA91711, USA
Mario J. Rizzo
Affiliation:
Department of Economics, New York University, 19 West 4th Street, New York, NY10003, USA
*
*Corresponding author. Email: [email protected]
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Abstract

In Risk, Uncertainty and Profit (RUP), Knight (1921) develops a theory of the firm that stresses the important role of entrepreneurial judgment for a firm's success. For Knight, entrepreneurial judgment is first and foremost the selection of ‘proxy entrepreneurs’ who are capable of making good judgments under uncertainty. In this sense, entrepreneurial judgment is essentially ‘judgment of judgment’. An overlooked implication of Knight's position is the fact that it leads to an endorsement of distributed entrepreneurship and responsibility. We deem this a very modern idea that challenges a completely hierarchical understanding of the firm. Knight himself does not thoroughly examine the institutional implications of the analytical framework he sets up in RUP. In this paper, we summarize the ‘philosophical vision’ of Knight's framework and illustrate his rationale behind the distribution of entrepreneurship. We conclude the paper with a discussion of potential institutional implications by referring to the danger of monocultures, the additional value created by cognitively diverse teams, and the effectiveness of venture capitalists.

Keywords

Cognitive diversityentrepreneurshipFrank KnightjudgmentuncertaintyB31B41D80
Type
Research Article
Information
Journal of Institutional Economics , Volume 17 , Special Issue 6: Special Issue on the Centenary of Frank H. Knight's Risk, Uncertainty, and Profit , December 2021 , pp. 925 - 942
Copyright
Copyright © The Author(s), 2021. Published by Cambridge University Press on behalf of Millennium Economics Ltd.

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