A Causally Ambiguous Research Stream

I’m reporting from another great ACAC conference. This conference featured retrospectives marking the 30 year anniversaries for Nelson and Winter’s book and Lippman and Rumelt’s article. Kudos to Bill and the organizing committee for putting it together.

A starting similarity in the two is that they were both directly intended to influence conversations in economics and both missed their marks. For example, about 1% of the cites for Lippman and Rumelt were in top Econ journals – despite the fact that the article appeared in the Bell Journal of Economics. Lippman & Rumelt recorded a video specifically for the occasion and it is quite instructive to hear them describe the intended contribution and the conversations taking place in the Economics literature at the time.

At the session, Todd Zenger described the setting at UCLA and in the literature that spawned the piece. Anne Marie Knott walked us through an experiment that simulated causal ambiguity as a factor that limits entry into a new market (based on an experiment by Camerer and Lovallo). As if by magic, we generated an equilibrium where incumbents with superior, but randomly drawn, cost functions, earned excess returns and entrants with poor cost functions exited.

My job was to describe the nature of the scholarship that has grown from the paper. Less than 40 of the 705 citations did more than cite Lippman and Rumelt in passing (e.g., the term “causal ambiguity” was used in the abstract). Of these, about 40% explored resources that might be promising as an isolating mechanism since they may exhibit causal ambiguity (e.g., knowledge management, stakeholder management, HR, etc.). In contrast, about 55% focused on the management challenges that needed to be overcome in order to leverage such assets — the perceived management task was to actually reduce causal ambiguity to leverage the asset effectively. In many cases, the implications of removing he isolating mechanism were not explored.

About 8% of the articles addressed rent appropriation (yes, this goes beyond my own papers). Causal ambiguity will tend to exacerbate a self-serving bias and increase claims on rent (lots of stakeholders claiming credit). Such claims may seem less credible in this context but the net effect is not obvious since the claims may still appear reasonably credible and may be hard to refute.

Digging deeper, the term is only useful to the extent that we reconcile the isolating mechanism, management challenges, and appropriation concerns. Some, have argued that causal ambiguity requires that the focal firm’s managers are in the dark to the same extent as rivals (see Barney, 91) – this is effectively luck and therefore may not be a particularly useful perspective. Recent developments in the literature suggest a more nuanced approach that explores the gap between perceptions in the focal firm (what King/Zeithaml refer to as linkage ambiguity) and rival firms (what Ryall calls subjective ambiguity).

Powell, Lovallo & Caringal (AMR, 06) offer a very nice review of experimental evidence linked to causal ambiguity and propose a model of how it might relate to firm performance. This is a great agenda for moving forward if we want to take it seriously. However, it requires creating conversations in the literature that incorporate new expertise and methods. Ultimately, the way forward is somewhat causally ambiguous…

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3 Comments on “A Causally Ambiguous Research Stream”

  1. [...] performance differences without reference to market power or random shocks. Interestingly, as Ruff Coff points out, both were aimed at economists, but had little impact there, instead becoming [...]

  2. srp says:

    I’m sorry I had to teach and missed the conference.

    Chasing down references can be depressing when you see how few citations of a paper actually engage with the core ideas it advanced. That’s one reason I’m a bit skeptical of citation counts.

  3. RussCoff says:

    Indeed, this was the case. I did a bit more analysis on the articles that listed “causal ambiguity” in the abstract figuring that these might be more serious. There are about 40 of those. However, many focused on the management challenges of CA and how firms need to reduce CA to manage effectively. Often these articles made no comment on the implications of this for the isolating mechanism. Other articles explored specific resources that might be CA. There were a few that examined rent appropriation in the context of CA (even some by people other than myself ;-)

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