The Value of Formal Models for Management Theory

Formal mathematical models are a powerful approach to building theory, but are underutilized in the management literature. In this paper, we clarify how mathematical models contribute to theory building. Through an extensive review of the published modeling literature, we contribute a framework that describes theory development using formal modeling, and position formal modeling with respect to other theory-building methods such as verbal theory, computational simulation, and inductive case studies. Strengths of formal modeling include internal validity, precision, and transparency. Overall, the core value of the method lies in its ability to illuminate causal mechanisms, reconcile conflicting theories, unpack complex relationships, and generate counterintuitive insights. We offer insights to readers of modeling research, as well as producers.