Overcoming the Challenge of the Fallacy of Composition

This chapter, which is mainly based on Forrest et al. (The fallacy of composition, its wide-ranging applications in economics/business and why systems science is appropriate for economic and business research, to appear) first looks at how the thinking logic of the well-known fallacy of compositionFallacy of composition has been widely and erroneously employed in economic and business studies. It then proposes systems science and methodology as an appropriate approach needed for investigating the organizations, evolutions, and interactions of business entities. To demonstrate the theoretical and practical potential of this proposal, the centralizability theoremCentralizability theorem of general systems is restated here to confirm how unintended and uncoordinated micro-level individualMicro-level individual desires can naturally lead to macro-level phenomenaMacro-level phenomena, such as racial segregation and major risks of market fluctuations, as discussed in an earlier chapter. In other words, although there are indeed many properties that emerge at the macro level not directly out of the characteristics of micro-level individuals, these systemically emergent properties can indeed be explained by using systems logic. For various reasons, empirical analyses are inevitable for economic and business studies. This chapter proposes a potential way to possibly rewrite statistically confirmed hypothesesStatistically confirmed hypotheses into generally true conclusions by referencing to principle of mathematical inductionMathematical induction.