“One cannot read far in the history of great economic undertakings without being struck by instances in which entrepreneurial error appears to have been a condition of successful enterprise”
“Creative error” describes a situation where error in decision making leads to successful outcomes. The concept was developed by John Sawyer at Harvard University during the early 1950’s. It is central to Albert O. Hirschman’s famous “principle of the Hiding Hand.” Recently, the concept has been discussed by Malcolm Gladwell and Cass Sunstein.
The concept of creative error is much misunderstood, however, including by Hirschman. Therefore this clarifying note.
Sawyer (2014: 143, emphasis in original) describes creative error as follows:
“one cannot read far in the history of great economic undertakings … without being struck by … instances in which entrepreneurial error or misinformation not only is massively present but where it appears to have been a condition of successful enterprise. Cases, that is, in which miscalculation or sheer ignorance apparently was crucial to getting an enterprise launched at all.”
Sawyer argued that creative error was key to the building of a number of large and historically important infrastructures, including the Welland Canal between Lake Erie and Lake Ontario, the Panama Canal, the Middlesex Canal, the Troy and Greenfield Railroad, and early Ohio roads. For these and other projects, Sawyer (2014: 144) found that “the error in estimating costs was at least offset by a corresponding error in the estimation of demand.”
Sawyer (2014: 145) writes of the Welland Canal, for instance:
“[W]e may very plausibly question whether the original capital would have come forward to start or later to complete the enterprise in the period in question had an accurate objective appraisal of final costs been offered. Once begun under benefit of error, however, ways were found gradually to finance the whole; and once completed the Welland Canal established itself beyond reasonable question.”
Sawyer was at pains to explain that he did not claim creative error to be a general phenomenon.
Sawyer was at pains, however, to explain that he did not claim creative error to be a general phenomenon applying to all projects and enterprises. He was simply interested in this phenomenon and therefore sampled only projects for his study that had been subject to creative error, that is, projects that (a) had been begun due to a cost underestimate that made the project look attractive to investors and (b) had actual benefits that outweighed costs making the project a success despite the cost underestimate and resulting cost overrun.
Sawyer (2014: 147) explained about his sampling that the “only cases of interest” to him were:
“a quite special kind of case within a category of investment in which unknowns as to both costs and returns necessarily bulk large; and within that category [I] neglected failures and select[ed] cases which were ‘successful’ … despite an original gross miscalculation as to costs because that first error was happily offset by at least a corresponding underestimation of demand.”
In fact, Sawyer uses more than a third of his text to explain this highly selective approach to sampling and to caution the reader that his results are an a priori consequence of the sampling and not an ex-post empirical outcome. Sawyer is thus explicit he did not find creative error in a random sample of projects; he instead describes such error in a sample of projects where each project was selected non-randomly to show creative error.
Each project was selected non-randomly to show creative error.
The main misunderstanding regarding creative error is that people who read Sawyer superficially overlook his selective sampling and think that he identified creative error as an ex-post empirical result, which emphatically is not the case, as Sawyer himself was the first to point out.
Albert O. Hirschman was subject to this misunderstanding in developing his principle of the Hiding Hand, with devastating consequences for its validity.
To see how, read on here: http://bit.ly/2slsLut
Gladwell, Malcolm, 2013, “The Gift of Doubt: Albert O. Hirschman and the Power of Failure,” The New Yorker, June 24.
Hirschman, Albert O., 2014, , “The Principle of the Hiding Hand,” originally published in The Public Interest, Winter 1967, pp. 10-23, here from Bent Flyvbjerg, ed., Megaproject Planning and Management: Essential Readings, vol. I (Cheltenham, UK and Northampton, MA: Edward Elgar), pp. 149-162.
Sawyer, John E., 2014, “Entrepreneurial Error and Economic Growth,” originally published in Explorations in Entrepreneurial History, vol. IV:4, 1951-52, pp. 199-204, here from Bent Flyvbjerg, ed., Megaproject Planning and Management: Essential Readings, vol. I (Cheltenham, UK and Northampton, MA: Edward Elgar), pp. 143-148.
Sunstein, Cass R., 2014, “Albert Hirschman’s Hiding Hand,” Foreword to Albert O. Hirschman, Development Projects Observed, third edition (Washington, DC: Brookings Institution).
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