MANAGERIAL AND DECISION ECONOMICS Manage. Decis. Econ.

33: 283294 (2012)

Published online in Wiley Online Library (wileyonlinelibrary.com) DOI: 10.1002/mde.2567

Cosmologies of Capability, Markets and Wisdom of Crowds: Introduction and Comparative Agenda
Teppo Felin*
Marriott School, Brigham Young University, Provo, UT, USA

The abilityor capabilityto do something has much to do with the nature of the individuals involved and the aggregate and emergent outcomes of their interactions. I focus on the endogenous origins of capability in organizations and markets, in response to cosmologies of capability and organization that focus on the exogenous environment (selection or external categories), behavioral learning and related mechanisms (association or analogy). I look at capabilities comparativelyacross forms, contexts and even speciesand discuss their aggregate, emergent nature. I introduce the special issue papers and discuss a broader agenda on endogenous capabilities, aggregation and comparative organization. Copyright 2012 John Wiley & Sons, Ltd.

INTRODUCTION This paper and interdisciplinary special issue are about the nature, origins, development, aggregation and emergence of capabilities in organizations, markets and society. I outline an endogeneity-focused agenda for studying both individual and organization-level capabilities, specically by building on comparative insights across disciplines (including biology, physics and psychology). I rst discuss existing cosmologies of capability and organization in the social sciences and the problems raised by the current focus on the exogenous environment (e.g., selection and external categories), behavioral learning and related, universal mechanisms (e.g., association or analogy). I provide an alternative research agenda, focused on the endogenous and latent nature of behavior and capability. I then focus on social aggregation and the enabling and constraining
*Correspondence to: Marriott School, Brigham Young University, 590 Tanner Building, Provo, UT 84602, USA. E-mail: teppo. felin@byu.edu

role of social context in the emergence of capability. In the course of laying out this agenda, I concurrently introduce the papers in this special issue and highlight comparative insights about capabilities and organization across disciplines.1

CAPABILITY: ENVIRONMENT, ASSOCIATIONISM AND LEARNING COSMOLOGIES Since the 1970s, theories of organization and capability have heavily focused on the environment and environmental selection. For example, organizational ecology adopts the theories and methods of population ecology almost on a one-to-one basis (Hannan and Freeman, 1977). The focus is on the behavior of populations of organizations and factors such as density dependence, carrying capacity and niches. Organizations are largely assumed to be homogenous and inertunable to adaptand behavior is environmentally determined

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and selected. Resource dependence and institutional theories operate on the basis of a similar, environmental logic where organizations are heavily dependent on others for resources, legitimacy and their very existence (Meyer and Rowan, 1977; Pfeffer and Salancik, 1978). More recently, others have focused on the need for organizations to t environmental categories and the legitimacy this confers on organizational actors (e.g., Zuckerman, 1999). These models also focus on environmental selection, organizational homogeneity and the diffusion of practices. However, they do not offer us meaningful models about organizations themselves (cf. King et al., 2010), nor the emergence of categories, practices, or niches. In all, studying the organization itself, let alone the individuals within itgiven contextual dependence relationships, the need for legitimacy and the seeming futility of managerial choice in the face of environmental selection (Murmann et al., 2003)is seen as unscientic and naive (Aldrich, 1979, 1999). Thus, we have models and theories of populations and diffusion (or learning) in environmentsa focus on external factorsrather than endogenous models of the nature and origins of actors, organizations and environments themselves. In the strategy literature, the notion of developing an organizational capability has similarly focused on the environment (for an overview, see Felin and Foss, 2011; cf. Winter, 2011). Nelson and Winters book (1982) An Evolutionary Theory of Change is about population-level dynamics and contextual factors such as the evolution of technology. Recent work building on this strain has argued that the origins and ancestry of organizational capability should focus on (a) contextual factors, (b) history and (c) environmental selection (see Winter, 2011, 2012a, b). Scholars have in fact directly imported the assumptions and explanatory mechanisms of selection-focused, population-level evolutionary biology into the domain of organizations, markets and society (e.g., in evolutionary economics). Some have even called for a generalized or universal Darwinism for organization theory and the social sciences, with environmental selection as the master mechanism (Aldrich et al., 2008; for an overview, see Hodgson and Knudsen, 2011).2 But, beyond citing randomness (or history), questions about the origins and emergence of variation are sidelined. The focus on the environment and universal mechanism of selection has precluded the development of comparative theories about the nature and emergence of organisms and entities themselves. The problem of the origins and nature of capability has also been noted by scholars in biology. For example, Fontana and Buss argue that selection-oriented theories Copyright 2012 John Wiley & Sons, Ltd.

assume the prior existence of entities and thus do not explain entities themselves, only their selection (1994: 1). The same could be said of organizations (cf. King et al., 2010). Fontana and Buss further argue that while it is true that the Darwinian process inexorably sets in once the relevant entities emerged, the problem of the origin of organizations nonetheless remains (1994: 2). DeVries has similarly noted that natural selection may explain the survival of the ttest, but it cannot explain the arrival of the ttest (1904: 825826). Others have also pointed to the problem of explaining the origins, or ontogeny or morphogenesis, of organisms (e.g., Turing, 1952; Kauffman, 1993). In short, these general arguments also support the point that focusing on the environment and universal mechanismswhether selection, learning or associationdoes not allow us to develop a theory of the origins and nature of organisms, behavior and capability. Some theories of capability and organization have of course tried to move away from the environment and its determinism to propose mechanisms related to the mind, mental factors and cognition. Many of these approaches go under the label of a behavioral view of organizations and strategy (for a recent overview, see Gavetti et al., 2012).3 Unfortunately, even with these approaches the focus remains on the environment, specically learning its structure, rather than explicating the structure of the mind or nature of individuals. For example, Gavetti (2012; also see Levinthal, 2011) has proposed a behavioral theory of strategy focused on the mechanism of association as a unied model of the mind and organizational capability. These models of learning and association are quite familiar from behaviorism in psychology (e.g., Skinner, 1971). Thorndike (1898), for example, discussed the role of association in learning well over 100 years ago. The association of observations, perceptions and causal links also has been a central mechanism of theories of learning since Hume and Locke (cf. Anderson and Bower, 1980; Gentner et al., 2001). Although scholars might challenge the links between behaviorism and extant behavioral work in organization theory and strategy, nonetheless, any basic review or textbook of behaviorism (e.g., Schwartz, 1978) reveals that the very same learning mechanisms are used in both elds. The theories are, essentially, borrowed and recycled. But this borrowing also comes with consequences and is not without its attendant problems.4 The problem with learning-oriented cosmologies is that the notions of associating and learningor analogizing for that matter (e.g., Gavetti et al., 2005; Gary and Wood, 2011)place emphasis directly on Manage. Decis. Econ. 33: 283294 (2012) DOI: 10.1002/mde

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the environment by focusing on what has been seen, observed or experienced. Associationism and learningoriented cosmologies see the mind and the organism under study as an overly simple receptacle of environmental inputs: temporally and spatially related observations, experiences and perceptions that are (somehow) processed and categorized via association. Notions such as absorptive capacity are also rooted in behaviorism and learning as they focus on what can be absorbed from the environment, on the basis of what has been experienced in the past. The structure of the environment (e.g., in terms of categories, Rosch, 1978)and not the structure of the mind itself, or the nature of the organism under studyis central to these models. Thus, for example, the postulated behavioral landscapes of strategy can in effect be seen as Skinnerian operant conditioning chambers where rationality is a learned process (see Gavetti, 2012; Levinthal, 2011). The behavioral landscape is learned as actors operate in it and better represent its dimensions and complexity. Learning is reinforcement-oriented where certain strategies and behaviors are rewarded, repeated and others selected out. Learning occurs via the senses: cameralike snapshots of what has been seen, observed and experienced. The organism is only involved in the sense of what it recordssees or remembers to have seen or experienced. The mind and nature of the organism are effectively seen as superuous and as a proverbial blank slate (for an overview, see Felin and Foss, 2011, 2012). In short, the logic of association, learning and selection focuses on universal mechanisms that tell us little, if anything, about the organisms themselves.

the means and foundation for generating novelty and heterogeneity. To further develop the aforementioned points, I rst discuss some comparative insights about capabilities from neighboring disciplines (e.g., biology and psychology) and then discuss the associated implications for studying human and organizational capability in organizations, markets and society. Some Comparative Insights about Capability My basic premise for arguing for the endogeneity of capability is as follows: the ability to do something, anythingwhether y, walk, create or thinkis a function of the nature of an organism. To illustrate this simplistically and comparatively: bees develop navigational abilities not because they are introduced to rich environments or experiences, or because they somehow learn navigation. Rather, bees grow navigational capability endogenously: the capability is latently there. Even if a human were (somehow, magically) exposed to the same exact stimuli and environments as the bee, humans cannot develop or learn navigational ability. Similarly, bees exposed to language will not somehow learn to speak (Chomsky, 2002). Thus, having a capability requires the form to latently be there. To provide another, simple example: a color-blind personno matter how strongly or incessantly exposed to red stimuli (the data of behaviorists and empiricists)will not observe or somehow learn redness. Thus, as a rst principle for understanding any capability: developing and having the capability necessarily require an underlying nature. Historically explaining any capabilitywhether the aforementioned bee navigational ability or the capability to see redas the results of environmental selection or learning amounts to, at worst, just so storytelling or guesswork, or at best, a very partial explanation rather than a meaningful theory about the capabilities themselves and their origin and development. Yes, selection occurs, but it necessarily requires an endogenous input. The domains of organization theory and strategy can draw some important theoretical and methodological insights from the notion of the endogeneity of capability. The rst central point is that the actual nature of the organism under study matters. Behavioral and environmental theories want to move the relevant boundary of empirical investigation away from the thing itself from individual to stimulus or experience, from organization to environment or universal learning mechanisms. The fact that our theories rely on universal mechanisms and recycle behavioral animal theories of Manage. Decis. Econ. 33: 283294 (2012) DOI: 10.1002/mde

CAPABILITY: ENDOGENEITY, RATIONALITY AND LATENT POSSIBILITY My basic thesis is that capabilities develop from withinthey are endogenous and internal. In order to develop a capability, it must logically be there in latent or dormant form. Capabilities grow endogenously from latent possibility. In some respects, capabilities should be thought about as organs rather than as behavioral and environmental inputs. Experience, external inputs and environments are, in important respects, internal to organisms, individuals and organizations. Although environmental inputs play a triggering and enabling role in the development of capability, the environment is not the cause of capability. Furthermore, the latency of capabilities places a constraint on the set of possible capabilities that are realizable. But these constraints are scarcely deterministic; rather, they also provide Copyright 2012 John Wiley & Sons, Ltd.

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learning should give us pause. The organism itself is not seen as relevant, given the focus on these universal mechanisms. This type of logic allowed Skinner, for example, to state that the skin is not all that important a boundary (1974: 84). Recent organizational work implicitly makes the very same argument by focusing on everything outside the organization itself: the environment, the association of perceptions, populations, embeddedness, networks and stimuli. In organizational research, it is seen as pass to study the organization itselfin fact, as suggested previously, research since the 1970s has largely said that organizational boundaries do not matter: external audiences matter, competitors and populations matter, categories matter. But moving the relevant boundary of investigation from the organism, or organization, itself to the environment is a classic trick that makes research only seem more scienticit conveniently gives us counts and observations that might correlate with behavior or capability but it simply results in studying epiphenomena and leads to mistaken conclusions about environments strongly shaping and selecting organisms rather than highlighting the endogenous factors that actually underlie behavior or capability. Empiricists famously thought that the truth would be found in the senses and the environment (Mach, 1897). But the point here is that whether something develops a particular capability, or behaves a certain way, depends on what it isits nature. Capabilities are specic to what is latently possible. Even within these constraints, heterogeneity is manifested on the basis of the respective nature and choices of the thing itself. The second important point, then, is that environmental inputs are specic and endogenous to organisms. Thus, whether talking about stimuli or selection, it is hard to talk about objective environments, as environments are intrinsic to the organism under study. As argued by Uexkll: every animal is surrounded with different things, the dog is surrounded by dog things and the dragony is surrounded by dragony things (2010: 117). Jacob von Uexkll in fact argued for the concept of Umwelt, which represents an organisms internal model of its surroundings, perceptions and environment. These internal models matter a great deal (as I will discuss further) as they direct the senses. Thus, again, although it may be convenient for the scientist to objectively classify or count the past experiences and behavior of an organism (as behavioral work does), or what has been selected, nonetheless, the environment of the organism is its own and the behavior and associated counts are not the causal explanation. Environments are also endogenous to organisms in the sense Copyright 2012 John Wiley & Sons, Ltd.

that they can, within constraints, choose and generate novel strategies, or employ strategies to avoid being selected. Thus, the origins of capability do not somehow lie in the environment, but capabilities necessarily are latent and precede environments. The latency of capability means that no capability is developed without the reciprocal ability to develop that capability in the rst place. There are no ex nihilo, environmental mechanismseven selectionthat somehow generate capability. Thus, I am not talking about uncaused causes (Hodgson and Knudsen, 2011) or some version of extreme subjectivism (cf. Shackle, 1979)but rather a focus on the nature and dormant capabilities of organisms themselves. Third, the notions of selection and learning are unnecessarily deterministic in their focus on the past and current environment. But nature is hardly deterministic, environments can be constructed, and the possibility space for organisms and strategies is vast (cf. Kauffman, 1993). In other words, organisms are engaging in constant problem-solving and the exploration of possibility, and importantly, what we see around us is only a very small sample of the possible. Environments of course may play a triggering role in the nature of the organism, or the generation of novelty, but the causal links are necessarily endogenous to the organism itself. The notion of poverty of stimulus highlights how the environmental inputs, often impoverished, can scarcely account for the rich and creative outputs manifest by organisms (see Felin and Foss, 2011). What gets confounded in the analysis is that what a stimulus even is depends on the nature of the organism, its choices, whereas environmental models sample on the dependent variable. But impoverished inputs seed latent capability. Indeed, the poverty of stimulus argument is a universal observation about the latency of capability any capabilityand the radical underdetermination of the environment in explaining capability. My focus on the endogeneity of capability builds on theoretical and methodological insights that are central in elds such as ethology, developmental biology and psychology. For example, the shift away from the environment to organisms themselves, and their careful comparison, was the focus of early ethologists, Konrad Lorenz and Niko Tinbergen, who studied the unique features of animal behavior (for a historical overview, see Burkhardt, 2005). These scholars argued that behavioral patterns should be studied as organs, rather than focusing on the exogenous environment. This work represented a radical shift away from behavioral and empiricist methodology and the associated focus on learning and the environment.5 In developmental Manage. Decis. Econ. 33: 283294 (2012) DOI: 10.1002/mde

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biology, there is also now an active stream of work on the origins and development of species (eld referred to as evo-devo) and the construction of niches (e.g., Carroll, 2006; Fodor and Piattelli-Palmarini, 2010; Odling-Smee et al., 2003), and in developmental psychology, there is persuasive work on the a priori nature of knowledge and capabilities (e.g., Spelke et al., 1992). All of these literatures tie back to rationalism and the work of scholars such as Plato, Leibniz, Cudworth, Kant, Goethe, Schiller, von Humboldt and Coleridge (for some historical perspective, see Chomsky, 2003). The unifying theme of these literatures is that organisms and individuals have natural, internal endowments and capabilities that pre-exist learning and environmentsa true, internal a prioriand environmental and learning cosmologies are radically underdetermined in explaining organisms, capabilities and forms as they simply do not account for these internal factors. Endogenous Capabilities, Human Nature and Organization Our discussion of the endogeneity of capabilities has important implications for studying human capability and organization. With humans, we are dealing with thinking and theorizing beings that can imagine possibilities and make choices and thus affect outcomes. That statement alone, although innocuous enough, is counter to environmental theories: any notion of agency leads some to argue that saying humans are special is simply a form of species chauvinism (Winter, 2011). But my precise point is that everything is specialthat is, in some way uniquein that it has a particular nature. This nature needs to be understood. Thus, it simply is not sufcient to talk about universal mechanisms (again, whether selection, association or learning) that mysteriously cut across organisms or organization. If human thinking and choosing are reduced to automaton-like associationor imitation, or experience, or local observation and search for that matterthen we miss a large swath of what is in fact human and organizational capability. Furthermore, there are important principles of endogeneity and self-organization that might help us comparatively understand the origins of capabilities in organizations, markets and society. Human nature encompasses a number of factors, among them: a priori knowledge, imagination, the capacity to theorize and the capacity to think and choose. Arguing for these capabilities scarcely requires the acceptance of some kind of mysticism, creationism Copyright 2012 John Wiley & Sons, Ltd.

or even radical subjectivism or constructionism (cf. Alvarez and Barney, 2007). Rather, we can offer a scientic basis for human capability and behavior that accounts for both the nature of individuals and the endogenous generation of novelty. The endogeneity of capability thus also does not imply some form of genetic determinism. Consider, for example, the case of linguistic capability: humans have an innate, built-in grammar (Chomsky, 1959). Although we might tell scienticsounding, behavioral stories about learning and using language (as Skinner did)by focusing on stimuli, teaching, social context and modeling (along with count data to support our points)nonetheless, there clearly is an innate basis for language that provides a better explanation of the capability. But note further that this innate grammar is scarcely deterministic. Its presence is necessary (as illustrated by the impossibility of teaching, say, a bee how to talkillustrating the specicity of capability), but the innate grammar in turn allows humans to generate constant novelty in the form of new sentences and ideas. Language provides an example of the Humboldtian innite use of nite means. To illustrate, the sentences in this paper are all novelthey are not some function, or even recombination or association of previous inputs. Thus, the mind is central; it intervenes in the world and creates new possibility, generating novelty far beyond environmental inputs. We can of course attempt to generate clunky one-to-one models of linguistic or ideational inputs and outputs (Teppo has such and such ancestors, was educated in such and such environment, read such and such papers, and thus wrote this paper with these particular arguments) or tell associational stories, but these types of explanations will always be ad hoc guesswork: just-so, historical stories that make little sense scientically as they do not account for endogenous origins, the nature of capability and the origins of novelty. Getting back to the point of innate language and its indeterminism and generativity, the innateness of language allows for creativity and the vast generation of possibility. In fact, it is surprising that with limited inputs (the poverty of stimulus argument), humans nonetheless manifest remarkable creativity and novelty (Felin and Foss, 2011). Human productive outputs far outstrip the inputs. Thoughts, similarly, are characterized by a productivity paradox where people are capable of thinking vast numbers of thoughts that they have not thought before and indeed that no one may have ever thought before (Block, 1995: 3). Thinking is endogenous to human nature. It is like an organ. This creates a signicant Manage. Decis. Econ. 33: 283294 (2012) DOI: 10.1002/mde

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problem for theories in the social sciences that thrive on behavioral mechanisms and exogenous inputs as evidence. Although this argument for thought, independent of senses, might not seem controversial (references to thought, planning and agency of course can be found in the literature), it is emphatically not where current behavioral and environmental theories of capability and organization are focused: they focus on universal mechanisms and the exogenous environment. Now, human nature does of course receive attention in the social, organizational and economic sciences, often in conjunction with discussions of and references to bounded rationality (Simon, 1955). However, the typical discussion of bounded rationality focuses on how little humans can process of their environment, in reaction to theories in economics that postulate some form of omniscience (e.g., Gavetti, 2012). In other words, this type of information processing view of the environment focuses on the senses (and their limits), on the environment and its inputs, without careful consideration for the independently generative possibilities of the mind and organism itself. Mechanisms such as looking forward or association have of course been postulated to try to account for this type of creativity and novelty (Gavetti and Levinthal, 2000), but these models postulate rather crude, behavioral, inputoutput models (Gavetti, 2012; Levinthal, 2011), and thus the actual, generative nature of the mind itself is not theorized or focused on (Felin and Zenger, 2009). Overall, a highly computational, mechanistic, input output view of organisms, individuals and organization dominates our view of capability and organizational behavior. Although these models are certainly interesting for the domain of articial intelligence, they do not tell us much, if anything, about the unique nature of organisms themselves. In particular, there is a dearth of work in the domain of organization theory and strategyand even the social sciences more generallythat recognizes, let alone focuses on, the endogenous factors behind capabilities in organizations, markets and society. Notions such as beliefs and interests of course presume agency and thus endogeneity is recognized in some models (cf., Hedstrom and Swedberg, 1998), although these models are the exception rather than the rule. There is a certain irony in the fact that scientists studying humans often do not allow their subjects to possess the very same capability that they are using to study humans: the ability to theorize. But human activity is necessarily theory-laden (cf. Popper, 1968): people do not simply observe, experience, remember or associatethe senses are necessarily always tied to, directed by and secondary to hypotheses and theories. Copyright 2012 John Wiley & Sons, Ltd.

As noted by Charles Peirce: Mans mind has a natural adaptation to imagining correct theories of some kinds . . . If man had not the gift of mind adapted to his requirements, he could not have acquired any knowledge (1957:71). This same theorizing capability necessarily operates in economic and social settings as well. Interestingly, the notion that human beings have endogenous beliefs and abilities to theorize was in fact central to economic and social theorists of bygone eras, such as the work of Max Weber and Adam Smith. Max Weber, for example, emphasized such factors as subjectivity, human reasoning, rationality, beliefs and interests (cf. Simmel, 1974)building on the work of Kantians like Hermann Cohen. And, Adam Smith argued that economic and social theories must take individual heterogeneity into account. Smith argued that in the great chessboard of human society, every single piece has a principle of motion of its own (1976: 343), thus suggesting that human nature includes the type of theorizing capability discussed earlier. Smith further demanded thatas summarized by Rothschildany eventual social theory must be a theory of people with theories (2001: 50). Behavioral work has taken us far aeld from this type of conception of human capability and behavior to actually theorize novel possibilities.

CAPABILITIES: AGGREGATION, EMERGENCE AND FORMS Many capabilities of course are collective or social: a function of the set of individuals that compose a whole. In other words, capabilitiesboth in nature as well as in the economic or social domainrely on the aggregation, interaction and coordination of numerous individuals. Collectives and collective behavior or action are ubiquitous, whether in hives, tribes, communities, movements, markets, organizations or associations. Understanding collective and social factors thus is central for studying capability, accomplishment and performance in a wide variety of settings. This question of social aggregation and emergence has received surprisingly little attention in organization theory and strategy (see Knudsen and Levinthal, 2007: 3940). Organizations are often treated as wholes, as one individual. And the aforementioned population-level, environmental and behavioral focus of many organizational theories has led scholars to abstract away from the actual constituent parts, individuals, that in the aggregate make up organizations and collectives. But the compositional or aggregate and emergent outcomes Manage. Decis. Econ. 33: 283294 (2012) DOI: 10.1002/mde

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of interaction are central for understanding capability (and whether it emerges) in organizations, markets and society. Thus, the second, central point of this paper and special issuebuilding on the notion of the endogeneity of capabilitiesis to focus on the social aggregation and emergence of capabilities. It is important to interject here that saying that a capability is social or collective does not immediately excuse scholars to abandon any consideration for individuals themselves, their nature, choices and endogenous capabilities. Indeed, in much of the social sciences, there is a tendency to do thisto immediately jump to a higher level of analysis in Durkheimian fashion and thus round out the individual (Coleman, 1990). Collective denitions of capabilities (see Zollo and Winter, 2002), or a focus on collective concepts such as routines, are problematic for this very reason: they not only abstract away from central matters related to the endogeneity of capability but they also do not meaningfully address key issues related to capabilities and social aggregation and emergence. The notion of the endogeneity, or internal origins, of capability requires us to start with individuals and thenwithout references to any form of mysticism (synergy, whole larger than sum of parts, history, culture, structure etc.)to be very specic about how aggregation, interaction and emergence actually happen and how the postulated collective and social constructs originate. One of the premises of this special issue is that much can be learned about the aggregation and emergence of capability by studying it comparatively across disciplines. After all, questions of aggregation and emergence (of capability and related concepts) are ubiquitous and dealt with in various disciplines: biology, physics, psychology, economics, political science and sociology. Indeed, there are both theoretical and methodological insights to be gained by studying the similarities and differences of how aggregation and emergence are dealt with across different social systems and contexts. In the following section I outline some central insights, including interdisciplinary ones, about aggregation and the wisdom of crowds, while concurrently introducing the special issue papers. I discuss aggregation and the wisdom of crowds and then link capability endogeneity with aggregation and emergent forms. Aggregation and Wisdom of Crowds Wisdom can emerge from social aggregationfrom aggregating the information, beliefs and opinions of individuals (for a popular press discussion, see Surowiecki, 2004). When information is aggregated, Copyright 2012 John Wiley & Sons, Ltd.

even if individually biased, its average (or equivalent, such as majority response) can provide a valuable signal about possibilities, aggregate preferences or the nature of reality (cf. Galton, 1907). Markets, for example, operate on this basis where individuals act on their subjective evaluations of the value of assets and the aggregate information of all of these actions is reected in market prices (Hayek, 1945). No one individual actor has all the relevant information but prices provide a coordinating mechanism that simultaneously transmits information and is dynamically updated as individuals take actions on the basis of their own information. Markets thus represent a type of spontaneous order that aggregates information and leads to the efcient adaptation of social systems. Organizations, in fact, have begun to use various market-like forms of information aggregation (such as prediction markets) to try to tap into the wisdom that lies in individuals (Felin and Zenger, 2011). The wisdom of social aggregation and spontaneous order also manifests itself in nature, for example, in collective decision-making by animals about where to hunt or decisions about where to build a nest (for an overview, see Sumpter, 2010). Different species have different ways in which they communicate and aggregate information: some species signal opportunities by leaving a trail for others to follow, others signal opportunities by bringing evidence of the richness of a food source and so on. In this special issue, Sumpter and colleagues indeed explore some of the fascinating links between human and animal collective decisionmaking. For example, quorum-sensing relies on threshold tipping points for collective decision-making. These models have intriguing links with models of collective action (cf. Granovetter, 1978). Quorumsensing can be seen as a version of a social proof about the nature of reality and the appropriateness of particular courses of action. As Sumpter et al. (2012) show, naturally quorum-sensing can also lead to false cascades of information, although these can also be corrected through dynamic updating. In the title of this special issue (and paper), I have used the colloquial notion of the wisdom of crowds to capture concepts such as social aggregation and emergence. But it is importantin fact, centralto recognize that there are pathologies to crowds or social aggregation. Thus, in many social settings, the so-called wisdom of crowds disappears. For example, bubbles can plague markets. Social psychologists have of course highlighted some of these aggregate pathologies, including such factors as social loang, conformity or the distortion of individual judgment Manage. Decis. Econ. 33: 283294 (2012) DOI: 10.1002/mde

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in groups (Asch, 1955; for an overview, see Stangor, 1999). Whether wisdom indeed emerges from aggregation and social interaction, then, depends on many factors: who is interacting with whom, the level and mode of interaction and interdependence, the task in question and even what is being maximized (e.g., truth versus socialization). Building on both the virtues and pathologies of the wisdom of crowds, there is a signicant opportunity to carefully study the underlying social epistemology of markets. Social sciences tend to begin with emergent or taken-for-granted social constructions rather starting with a truth-oriented, veristic approach to epistemology that recognizes the efforts of agents toby whatever meanstry to obtain actual information about the value of assets and nature of reality (Felin and Foss, 2009). There is thus an opportunity to study the specic social dynamics of truth-seeking in markets: who inuences whom, where information originates and how it diffuses. Truth-seeking of course does not mean omniscience, nor the lack of mistakesas illustrated by false cascades of information and market bubblesbut we can at least recognize the efforts of humans to do the best they can in gathering information in uncertain situations. This type of social epistemology requires a rather fundamental re-thinking about what sociality is (Goldman, 1999) and how this impacts our understanding of markets and organizations. More generally, it is important to tease out both the benets and pathologies of social aggregation and interaction, without simply referring to emergent outcomes, a common practice when discussing collective behavior and organizations. This problem is recognized in the levels of analysis literature: emergence is often referred to without careful attention to the actual constituent parts and the micro-mechanics of what exactly emerges and how it emerges (see Dansereau et al., 2003). The notion of emergence in fact is often used quite loosely: its use either focuses on outcomes that are hard to predict from the interaction of the parts, or references to emergence can amount to nothing more than an admission of ignorance about what exactly is happening (cf. Nagel, 1961). Kozlowski and Chao (2012), rooting their work in psychology, offer a very careful discussion of what emergence means, across levels and time. The authors specically explicate emergence in the context of cognition and cohesion in teamsalthough their careful development has implications for studying other concepts, as well as higher levels of analysis. Questions of social aggregation of course are not always as straightforward as simply summing up or averaging the independent inputs of individuals, as Copyright 2012 John Wiley & Sons, Ltd.

social interaction, and thus inuence, needs to be taken into consideration. For example, Castellano (2012) discusses how continued interaction leads to the homogeneity of opinion and beliefs: individuals are inuenced by others opinions and beliefs over time. This tendency toward homogeneity may of course be driven (or amplied) by the fact that individuals have similar opinions or beliefs in the rst place, ex ante, and they then self-select to interact with similar others (as discussed by Felin and Knudsen, 2012). But in general, the tendency toward homophily in opinion reduces the much-needed heterogeneity of informational inputs in groups and societies (cf. Page, 2007). Increased homogeneity is benecial in some situations, for example, in the process of generating culture or consensus. But heterogeneity can also be important to ensure the continued generation of novelty (cf. March, 1991). The outcomes of social aggregation are also dependent on the set of incentives faced by actors. Hong et al. (2012) in fact provide a nice model that looks at the role that market incentives and actor independence play in accurate, collective prediction about uncertain events. In short, incentives matter, although Hong et al. also highlight the need for actors to be independent (working in isolated environments) and heterogeneous when making predictions. Thus, there is a delicate balance between actor independence and interdependence, and the need for requisite heterogeneity for accurate, collective prediction. Questions of aggregation of course implicate many other issues. For example, in this issue Willer et al. 2012 study the use of power and associated perceptions of status. Although they do not directly deal with questions of aggregation, their treatment of powerwho is perceived to have it and whyhas implications for aggregation. For example, those who are perceived to have more power are likely to have disproportionate voice in collective decision-making. Thus, aggregation may not happen on a proportional basis (one individual one vote), rather, the opinions or beliefs of those with power are weighted more heavily. Another important issue is the sense of we-ness that a group of individuals feels. Foss and Lindenberg (2012) argue that notions of collective agency and we frames need to receive more careful attention. In the interdisciplinary spirit of this special issue, they draw on insights from numerous disciplinesanthropology, cognitive sociology and psychologyand highlight how we-ness implicates our understanding of the existence of organizations and boundaries. Overall, there are many research opportunities in the area of the aggregation and emergence of Manage. Decis. Econ. 33: 283294 (2012) DOI: 10.1002/mde

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capabilities. I am particularly compelled by the opportunities to study aggregation comparatively in nature and its similarities and differences to organizational and market settings (cf. Sumpter et al., 2012). In fact, this type of comparative work might provide intriguing ways for organizational and strategy scholars to apply the Krogh principle: for a large number of problems there will be some animal of choice on which it can be conveniently studied (Krogh, 1929: 247). For example, a taxonomy of various forms of aggregation and collective decision-making in fact might yield interesting insights about how problems of aggregation are solved in nature and potential forms of application in human systems. From an applied perspective, human systems might benet from bioinspired insights about how to effectively aggregate information in various social settings. Animals of course possess many, sophisticated, species-specic mechanisms for aggregating information (see Sumpter, 2010) but these can be modied to suit human settings. For example, technologies such as the Internet allow for novel forms of aggregation. Human trails of attention and search are now aggregated, for example, by Internet search engines to generate a collective level index of information. But many possible applications remain for extending bio-inspired intuition into organizational design and the design of human interaction. Capability Endogeneity and Emergent Forms The notion of emergent forms is also central for understanding capabilities and has some intriguing links to our previous discussion of endogeneity. Individuals can organize themselves, spontaneously or otherwise (by design), into different arrangements with varied rules about how to interact. This has important implications for the development and emergence of capability. For example, in organizations, we have heterogeneous capabilities that can be said to emerge more purposefully (or, by design), whereas in markets, capabilities emerge in more spontaneous fashion (Coase, 1937; Hayek, 1945). Different forms have comparative virtues and costs in realizing individual and collective capability. The focus on forms then recognizes that aggregation does not happen in a vacuum; thus, social forms both enable and constrain the development of capability. Organization and form itself might also have endogenous origins. The notion of capability-deprivation provides an apt illustration of the power of form in both enabling and constraining capability development. The notion of capability deprivation, despite its obvious links, has Copyright 2012 John Wiley & Sons, Ltd.

not been discussed in organization theory and strategy. Specically, in development economics, Amartya Sen (1999) has developed a capability perspective that focuses on the extent to which individuals have freedom to develop capabilities and pursue outcomes that they value. This approach implicitly recognizes that capabilities are endogenous to actors. But these latent capabilities can be deprived by a social context (such as an authoritarian government) that does not allow for individuals to freely choose outcomes that they value (e.g., education, profession, social afliations). Thus, capabilities, due to a choice-deprived social environment, can remain dormant and latent. Note that the environment itself is scarcely seen as the central cause of capability. The organizational insight here is important: capabilities reside in individuals not in environments. But environments can deprive capabilities and cause them to remain dormant. The gist of the microfoundations program in strategy and organization theory is very much anchored on similar intuition (cf. Abell et al., 2008): a bottom-up program of research that recognizes that the locus of capabilities is individual level but that environments can both enable and constrain capability development. One central mechanism of capability development, then, is individual-level self-selectionselection that determines with whom one interacts, on what basis, and in what organization or under what form of interaction. This type of self-organization is familiar to us in markets, but it is also prevalent in other social settings (Schelling, 1978), as well as nature (Kauffman, 1993). Understanding the particulars of self-organizationfor example, who joins or forms a particular organizationhas much to do with the type of capability that emerges (or not). In this special issue, Felin and Knudsen develop precisely such a model of selforganization and the emergence of organization, or nascent entrepreneurship, on the basis of the mechanism of self-selection or sorting and interaction. However, their model also explicitly recognizes that the collective context plays both an enabling and constraining role in realizing capability and organization. In a related vein, Kimbrough and Wilson (2012) also focus on nascent entrepreneurship, by looking at the emergence of exchange and cooperation in an experimental market setting (building on Kimbrough et al., 2008). They also look at how varied property rights impact social interaction and emergent entrepreneurial activity. There are, of course, signicant innovations in organizational and societal forms as well, and these naturally have important implications for understanding capabilities. Frey et al. (2012) discuss the institutional Manage. Decis. Econ. 33: 283294 (2012) DOI: 10.1002/mde

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innovation of the community enterprises. They argue that this form is novel in that it produces public resources and relies on the benevolence and goodwill (rather than economic self-interest) of its contributors. It is now abundantly clear that the type of community enterprises that they talk aboute.g., Linux and open source softwarerepresent an economically signicant organizational innovation that requires additional theorizing. Of course, these forms can be seen as radical market-hierarchy hybrids (Felin and Zenger, 2011), although additional work is needed on how forms such as community and peer production are linked with organizations and markets (cf. Benkler, 2002). Thus, nally, comparative work on different social forms is central for understanding capability (cf. Zenger et al., 2011). Leeson and Coyne (2012) in fact take such an approach by comparing three different organizational forms: legislation, norms and private rules. They compare the social rules of these forms and their respective virtues, costs and consequences. For example, legislation is a more adaptive or alterable solution for societies, compared with norms, although legislation can also lead to unwise choices. Although the authors of this article do not talk about capabilities per se, their article has important implications for which forms might best maximize the origin and development of capability, whether individual or collective level. Social rules and institutions of course play a big part in both enabling and constraining capability development and collective action. Although we have macro-level arguments on this issue (North, 1990), I think there is an opportunity to study the interactional micro-mechanics of different rules and forms and their implications for the development of collective capabilities in organizations and markets.

admittedly requires a signicant tolerance for interdisciplinarity and will also require innovations in theorizing and methodology within the context of economic settings. I think the comparative aspects of this program of researchfocused on endogeneity and aggregationare particularly fascinating. But beyond similarities and insights that might be garnered from other disciplines, more work is needed on the endogeneity of capability in economic, organizational and social settings. Furthermore, although we have discussed the outlines of an agenda, much work is also needed for linking endogenous capability with aggregate, emergent and comparative forms.

NOTES
1. I have taken some liberties in this article and editorial introduction and speculate well beyond the topics covered by the specic papers in the special issue. Of course, the authors of the papers in this special issue are not implicated by any of these arguments. Though, the process of editing the papers in this interdisciplinary special issue, and introducing them here, certainly informs the arguments in this paper. 2. Related to the universality of Darwins theory, Sid Winter argues: natural selection and evolution should not be viewed as concepts developed for the specic purposes of biology and possibly appropriable for the specic purposes of economics, but rather as elements of the framework of a new conceptual structure that biology, economics and other social sciences can comfortably share (1987: 617). 3. There is work directly building on the behavioral theory of the rm (Gavetti et al., 2012), as well as a broader movement of behavioral strategy (see Powell et al., 2011). 4. The logic of learning is central to many related models of capability and organizational behavior. For example, process approaches to capability are also built on a learning logic (given the emphasis on doing and repetition) (Eisenhardt and Martin, 2000). More broadly, the general learning cosmology shows up in recent theories of the emergence of organizations and markets (Padgett and Powell, 2012: 17): actorsagain, be they people or organizationsbecome who they are through learning and teaching. 5. As Tinbergen notes, behavioral theories of psychology and animal learning look at behavior in highlyconstrained settings and then formulate theories claimed to be general (1963: 411).

CONCLUSION In this paper I have sought toby drawing on comparative insights across disciplineslay out an agenda for studying the endogenous, aggregate and emergent origins of capability. The arguments in this paper admittedly are speculative and offer only a sketch rather than a detailed research agenda for studying endogenous and aggregate capability. In all, I think there are signicant opportunities to study individual and organizational capability by carefully focusing on the endogenous features of capability as well as the aggregate and emergent factors. Current research does not meaningfully focus on these issues but instead espouses an environmental and behavioral learning cosmology of capability. The approach suggested here Copyright 2012 John Wiley & Sons, Ltd.

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