Ontological Uncertainty and Innovation

This paper is about the relationship between uncertainty and innovation. In particular, it raises and responds to two questions: what are innovating agents uncertain about, and how does their uncertainty affect how they act? To address these questions, we distinguish among three kinds of uncertainty: truth uncertainty, about whether a proposition is true or false; semantic uncertainty, about what a proposition means; and ontological uncertainty, about what kinds of entities inhabit the agent’s world. We claim that, while most of the economic literature is concerned only with truth uncertainty, semantic and especially ontological uncertainty are critical for understanding agent behavior in innovation contexts. We explore the implications of ontological uncertainty at three different levels of organization and temporal scales: the individual acting in the “extended present”; multi-person agents interacting to construct novel entities and attributions; and the emerging market system, organizing the interactions of the agents that compose it. At each of these organizational-temporal levels, we develop a theory that explains how agents cope with ontological uncertainty: a narrative theory of action at the individual level; a theory of generative relationships among agents; and a theory of scaffolding structures in market systems.