Simulated Empathy in Entrepreneurship

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Have you ever wondered why some entrepreneurs seem to "just know" exactly what their customers want before the customers even know it themselves? The secret isn't magic; it's a cognitive process defined as the Simulated Empathy Theory of Entrepreneurship (SET).

SET suggests that successful entrepreneurs don’t just "feel" for their customers; they actively simulate their internal mental states to solve the "knowledge problem" of the market.

Two heads of people trying to empathize with each other.

What is Simulated Empathy?

In their 2021 research, Packard and Burnham argue that entrepreneurs face a "Problem of Other Minds." Because you can never truly know someone else's internal experience, you must create a mental model of it.

Unlike emotional empathy (feeling what others feel), SET is a tactical application of Theory of Mind (ToM). It involves using your own mind as a proxy to run "simulations" of customer experiences, allowing you to predict their needs with clinical precision.

The Simulation Mechanic: Projection & Adjustment

The theory breaks the process down into two critical cognitive steps:

  • Projection: The entrepreneur starts by imagining what they would want in a given situation.
  • Adjustment: They then refine that initial guess by adding specific knowledge about the customer’s unique environment, culture, and constraints.

Key Principle 1: Solving the Knowledge Problem

Information about customer needs is often "sticky" and hard to find. Packard and Burnham suggest that simulated empathy acts as a bridge. By mentally "inhabiting" the customer's world, entrepreneurs can uncover frustrations that users haven't even articulated yet.

Case Study: Airbnb
The founders didn't just analyze data; they stayed in their own hosts' listings. By simulating the guest experience, they felt the hesitation and lack of trust guests experienced when looking at low-quality photos. This "simulated frustration" led to their most important early innovation: professional photography services for hosts.

Key Principle 2: Overcoming Projection Bias

The greatest risk in SET is Projection Bias—assuming the customer is exactly like you. To counter this, successful entrepreneurs must maintain high Cognitive Flexibility.

They must be able to switch between the "Entrepreneur Self" (focused on features and costs) and the "Customer Self" (focused on ease and value) rapidly. If the simulation isn't constantly updated with real-world data, the business will fail because it's solving a problem that only exists in the entrepreneur's head.

Key Principle 3: Calibrating the Simulation

Simulation is an iterative loop. Packard and Burnham emphasize that the best entrepreneurs are those who are most efficient at "debugging" their mental models through external feedback.

Calibration Method Impact on SET
Direct Observation Adds real behavioural "data" to the mental simulation.
MVP Testing Validates if the "simulated" reaction matches the real reaction.
Perspective-Taking Reduces bias by forcing the mind to adopt foreign constraints.

The Controversy

A more modern and cynical addition to the list, this theory looks at how entrepreneurs "perform" empathy to gain resources. Entrepreneurs use calculated, artificial displays of empathy to manipulate investors, employees, and customers into trusting them. It suggests that emotional intelligence in business is a weapon, not a virtue. Critics argue this promotes a sociopathic approach to leadership, while proponents point to the "reality distortion fields" of famous founders as proof of its effectiveness. 

Conclusion: Empathy as a Hard Skill

The Simulated Empathy Theory moves empathy away from being a "soft" personality trait and into the realm of hard strategic tools. By mastering the ability to simulate the customer's internal world, you can move beyond guessing and start building products that feel inevitable to your market. 

Design Thinking is the practical methodology for using empathy to solve problems. Simulated Empathy is the cognitive theory regarding how entrepreneurs project or model the needs of others. 

References

Related Theories

Empathy is a cognitive bridge to the future. These frameworks explore the decoding of market signals, the methodologies for problem-solving, and the "Social Judgements" used to build trust:

1. Cognitive Perception

2. Methodical Empathy

  • Design Thinking: The tactical methodology for implementing empathic solutions in the real world.
  • Jobs to be Done: Identifying the specific "rituals" your customer's mind is trying to complete.

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