What is the radical subjectivist theory of entrepreneurship?
Ludwig M. Lachmann was a German Economist who proposed a radical subjectivist theory of entrepreneurship as an alternative to existing Austrian School theories of entrepreneurship (e.g., altertness theory or uncertainty-bearing theory or creative destruction theory).
According to Lachmann, entrepreneurs develop plans according to their subjective knowledge and expectations. Expectations form as a result of the creative imagination of entrepreneurs, who may envision many competing futures. Entrepreneurs continually revise their plans as they encounter new bits of market information during exchange experiences. Capital is seen as continually recombining due to the process of capital regrouping. As capital is invested sub-optimally, errors lead to new temporary stocks of capital that need to be redeployed toward new purposes. Institutions are viewed as signposts that provide the rules of the game for millions of individuals, allowing for mass coordination.
Lachmann assumes that individuals experience time differently and that the only way to interpret events is to reconstruct them from bits of information after they have occurred.
According to Lachmann, knowledge includes interpretations of the past and expectations about the future. However, expectations and interpretations are continuously changing. As past events are reinterpreted, new expectations form about the future. Therefore, entrepreneurs should embrace the continuous revision of their plans.
While other Austrian views of entrepreneurship have received more attention, some scholars are working to (re)introduce the radical subjectivist perspective into mainstream entrepreneurship literature (see Chiles, Bluedorn and Gupta, 2007 for example).
Chiles, T. H., Bluedorn, A. C., and Gupta, V. K. (2007). Beyond creative destruction and entrepreneurial discovery: A radical Austrian approach to entrepreneurship. Organization Studies, 28(4), 467-493.