51fund education, and of course renewable energy, as well as refugee entrepreneurship. Each of these, while not immediately and predictively tied to returns, do offer the possibility of economic upsides in the longer run that can fuel market-based creativity. Yet, there do exist problems that do not have economic upsides, whether for individuals in their lifetimes or for society in the longer run. Caring for the elderly or the severely mentally ill comes to mind. The upsides in these cases are more difficult to capture in economic terms and even more subject to the three dimensions of the effectual problem space. My aim in bringing these examples to fore is neither to enter a discussion of market nor moral failures. Instead, it is to acknowledge the argument that states may be required for tasks beyond the facilitation or augmentation of markets.

52S. D. Sarasvathy

States are insurers of last resort against the multiple uncertainties that characterize the effectual problem space in individual human lives. The invention and practice of taxation in human history is not an arbitrary development. The oft-repeated quote attributed to Benjamin Franklin, “Nothing is certain but death and taxes,” uncovers a profound truth under the effectual lens, that has a different meaning than the one usually associated with it. Consider, for example, the fact that as life expectancy increases, taxes become even more important to protect us through the uncertainties that may accidentally debilitate us in physical, emotional, and other ways. Another example consists in the technologies that allow billions of people to survive and thrive, while concurrently threatening to unmoor us from our homes, spatially as well as temporally. It is a plausible hypothesis that immortality is not likely to reduce, let alone eliminate uncertainty. Hence funding for some form of insurer of last resort may be inevitable. Certainly for now, life is more uncertain, without death; and however unpalatable this fact, without taxes.

Political philosophy endorses the fact that at the minimum, the most important task of states is protection. That includes protection from the uncertainties of life. Yet paradoxically, their structure, whether in terms of hierarchy and bureaucracy, as well as their function in terms of investing OPM collected through differing degrees of coercive force, makes it more difficult for them to use effectual techniques. From an effectual perspective, therefore, it is time to rethink states as artifacts of effectual action, not only arenas within which markets and organizations function. History shows us how labor markets and state institutions were reshaped in concurrence with the development of the scientific method. Hence we routinely accept state investments in basic science so long as the investment decisions are overseen by reliable and reputable scientific bodies and made accessible sooner or later to private enterprise as well. I see a similar evolution of new institutions and radical rearrangements of the roles of markets and states driven by the effectual entrepreneurial method. Human well-being requires investments in the productive without giving up on the seemingly unproductive. In fact, as already mentioned in the case of UNIX and social media, unproductive situations and experiences produce new goals worth pursuing. In conventional dichotomies of markets and states, market mechanisms are notoriously bad at fostering unproductive activity. Their efficiency is the efficiency of separating wheat from chaff. This may be arguable, but not unreasonably so. Hence, also arguably, only states can step in to take up the slack to take care of those who need care, productive in the longer run or not. But the analysis I offer here from the effectual perspective uncovers a process that sifts and reshapes relationships between markets and states in a dynamic way. Both markets and states become inputs into the effectual process. But they are also refabricated outcomes of the process.

53An Effectual Analysis of Markets and States

The Ultimate Innovation: Goals Worth Pursuing

In Development as Freedom, Amartya Sen explained that to thrive, humans need to choose their own ends, not merely get access to resources for achieving externally set developmental goals. In building multiple ventures, including successes and failures, expert entrepreneurs learn the same lesson through the principles and processes of effectuation that help engender goals worth pursuing. Additionally, this process of shaping new goals not only leverages market-like variations in the lived experiences of individual stakeholders, but is also crucial to build viable governance mechanisms that coalesce into enduring ventures and environments that nurture them. At the extreme, an argument could be made that if we already know with clarity and precision which goals are worth achieving and can predict with reasonable accuracy how to achieve them, we may not need markets or states. Or the effectual process. Or conscious, lived human experiences for that matter. We could program artificial intelligence (AI) to structure societies that offer comfort and efficiency in the achievement of the chosen goals with Bitcoin for currency and Ethereum for enforcing property rights and contracts. However, even with AI and unfettered digital decentralization, it is not clear which goals are worth achieving. Hence, the most important goal might be the freedom to fashion new goals arrived at through the push and pull of variations in lived experiences not subject to static frameworks neatly sifting positive from negative valences in those experiences. Furthermore, new goals can also emerge in the process of achieving old ones. And unsavory unintended consequences can arise from the very acts of prescribing and pursuing preset goals that were deemed worth achieving. All of these get embodied in the effectual problem space. The effectual problem space brings into stark relief the question I began this essay with: Even as we strive to find best-possible solutions to achieve goals we believe are worth achieving, what are we willing to live with if we get it wrong? We know from behavioral economics that we react differently to losses than to gains. For example, we experience aversive feelings in response to a loss of $5 more acutely than positive feelings when we gain $5. In terms of goal-setting, this shows up in a different asymmetry. It is easier for us to know what we do not want than what we do. It is easier, for example, to teach children what not to do to avoid bad consequences than how to take action to achieve good outcomes. Avoid talking to strangers does not usually tell us how to form new friendships and build lasting relationships. Similarly, when it comes to governance, even at the level of states, it is easier to choose from loss aversion, Avoid job losses than foster ways to create jobs. Or worse still, create jobs while saving the environment.

As we have seen in the analysis above, the lessons that entrepreneurs learn could be of use here. But that requires us to invert traditional conceptualizations of goals and prediction in good decision-making. Isotropy compels us to confront the fact that we face Type I-Type II errors more often than we would like to believe. Consider this at the meta-decision level. We could erroneously deem the future