Entrepreneurship, discovery and search

Abstract

This paper analyzes the theory of the firm by clarifying the relationship between Israel Kirzner’s notion ‘discovery’ and Herbert Simon’s notion ‘search.’ In the problem of ignorance, the paper argues how Kirznerian entrepreneurship differs from Simonian entrepreneurship. Kirzner emphasizes the quality of perception for recognizing a profit opportunity, while Simon emphasizes the search for possibilities. In the paper, ignorance can be classified into two categories: ‘lack of information’ and ‘lack of awareness.’ The former is attributable to scarce knowledge in an organization. Agents in search activities know the extent of their ignorance and can be informed about the missing information. On the other hand, the latter corresponds to unnoticed opportunities in the market. Discovery is always accompanied by surprise in disequilibrium where agents are ignorant and are often ignorant of their ignorance. Discovery replaces ignorance with newly identified feasible states.