Complexity - The Emerging Science at the Edge
of Order and Chaos
Last Updated 2/18/01
Introduction
After a list of questions such as, "Why did the Soviet Union's forty-year hegemony over eastern Europe collapse within a few months in 1989?", "Why did the stock market crash more than 500 points on a single Monday in October 1987?" and "Why did individual cells began to form alliances some 600 million years ago...?" the author provides a unifying answer revealing what the book is about:
Page 11 - Every one of these questions refers to a system that is complex, in the sense that a great many independent agents are interacting with each other in a great many ways.
Page 11 - In every case, groups of agents seeking mutual accommodation and self-consistency somehow manage to trancend themselves, acquiring collective properties such as life, thought, and purpose that they might never have possessed individually.
From the first few pages we see the author list these traits of complex systems:
- Sponaneous self-organization
- Emergent properties of the system as a whole
- Adaptive
- Dynamic
- Edge of Chaos rather than a static equilibrumThis is a young branch of science. Those in it believe "They are forging the first rigorous alternative to the kind of linear, reductionist thinking that has dominated science since the time of Newton - and has gone about as far as it can in addressing the problems of our modern world." - Page 13.
Chapter One - The Irish Idea of a Hero
The chapter "hero" and first character in the book is Brian Author, an economist whose progressive ideas are at first ignored by many and then later adopted vigorously. The author writes with a "let's watch this passionate young man as he struggles to make it in an imperfect world" style. This adds interest and color to what might otherwise seem too drab to keep reading. It brings alive the people involved and their living ideas, and puts them into historical context.
Early on, Brian could see that more than the "old laws of equilibrum and supply and demand" were needed. Eventually his central breakthrough was a concept he called increasing returns, which is another term for positive feedback. This concept was missing from the standard economist's model of economic behavior, which included only negative feedback, called decreasing returns. Both are needed to explain how economies evolve as people's decisions determine economic events, such as where to live, what to purchase, where to locate a business, and what to produce.
Sidebar on Systems Theory - For those needing a brushup on this subject.
An example of decreasing returns is the classic but simplistic Law of Supply and Demand. When there's little of an item, it's price is high, profits are high, and so manufacturers decide to produce more. This increases supply, which lowers demand, which lowers the price, which in turn reduces supply. In this manner markets reach an equilibrum. This was the invisible hand central to Adam Smith's ideas, which dominated economics so much at first that further laws, such as what Brian knew was needed, were not pursued. The Law of Supply and Demand is simplistic because it fails to correctly explain many things, such as why people will buy more of an inferior item.
An example of increasing returns is store size. The closer a store is to more customers, the better. So over time businesses will tend to locate their stores closer and closer to the proper groups of customers. They will even decrease store size so as to have more stores so as to be closer to more customers. This would lead to an infinite number of infinitely small stores except that eventually decreasing returns would be encountered as the extra cost of more stores with less traffic per store exceeded the gains of more stores.
Definitions - Negative feedback reduces what produces it, while positive feedback increases what produces it. These laws are central tenents of systems theory.
See The Fifth Discipline by Peter Senge, Chapter 5, where negative and positive are called Balancing and Reinforcing Feedback. Feedback is the foundation of the book's message. It was a best selling classic on learning organizations from the perspective of "you better grasp systems theory if you're going to even try to understand anything as complex and hard to change as a business." It has the best practical overview of systems theory in real world use that I know of. Some terrific quotes to illustrate the awesome power of "systems thinking":
Page 68 - Systems thinking is a discipline for seeing wholes. It is a framework for seeing interrelationships, rather than things, for seeing patterns of change rather than static snapshops.
Page 69 - Today, systems thinking is needed more than ever because we are becoming overwhelmed by complexity.
Pagge 73 - Reality is made up of circles [of causality] but we see straight lines. One of the reasons for this fragmentation in our thinking stems from our language. Language shapes perception. What we see depends on what we are prepared to see. Western languages, with their subject-verb-object structure, are biased towards a linear view. If we want to see systemwide interrelationships, we need a language of interrelationships, a language of circles. [feedback loops]
Page 101 - Leverage lies in the balancing loop - not the reinforcing loop. To change the behavior of the system, you must identify and change the limiting factor.
A positive feedback loop without a counteracting negative one will lead to catastrophe. An example was the cold war arms race. When one side added a thousand bombs, the other side had to also. The first side then felt more threatend, and so they built bigger bombs, which the other side matched. Then they went with multiple warheads, which the other side matched and even beat. Etc, etc, etc as the positive feedback loop spun things out of control. Some say this cycle ended only when the cost of the arms race bankrupted the Russians first.
In this manner we can see that systems are self governing through their positive and negative feedback loops. Overly disrupt these feedback loops and a system will either stagnate due to negative feedback dominance, or spin out of control due to positive feedback dominance. Thus a chief goal of economics is how to predictively manage systems through adjustment of feedback loop parameters, such as with the Fed's prime interest rate or tax rates. This is not easy because these mechanisms are still barely understood. :-)
Brian went through a grand "epiphany" when he discovered that by adding increasing returns to economic theory he could now explain many kinds of complex system behavior that was ignored by traditional economists because they couldn't explain it. The "Eppihany on the Beach" tale starts on page 29. On page 34 the author writes:
In fact, wrote Prigogine in one article, it's conceivable that the economy is a self-organizing system, in which market structures are spontaneously organized by such things as the demand for labor and the demand for goods and services.
Author sat up immediately when he read those words. "The economy is a self-organizing system." That was it! That was precisely what he had been thinking ever since he'd read The Eighth Day of Creation, although he hadn't known how to articulate it. Prigigone's principle of self-organization, the spotaneous dynamics of living systems - now Author could see how to relate all of it to economic systems.
In hindsight it was all so obvious. In mathematical terms, Prigogine's central point was that self-organization depends upon self-reinforcement: a tendency for small effects to become magnified when conditions are right instead of dying away. It was precisely the same message that had been implicit in Jacob and Monod's work on DNA. And suddenly, says Author, "I recognized it as what in engineering we would have called positive feedback." Tiny molecular motions grow into convection cells. Mild tropical winds grow into a hurricane. Seeds and embroys grow into fully developed living creatures. Positive feedback seems to be the sine qua non of change, of surprise, life itself.
Brian's main and dramatic proof of the existence of positive feedback in ecnomics was lock-in. This occurs when an unpredictable and apparently irrational equilibrum occurs that locks a market in to a particular standard.
For example consider Beta versus VHS video. Beta was slightly technical superior. Traditional economics would predict it would come to dominate, as consumers acted in a perfectly rational manner to maximize the utility of their decisions. But what happened is VHS got to market first, and so consumers purchased more VHS videos since there was more equipement to play them on, and they became the lock-in standard. This is now called the First To Market (FTM) phenomenon.
Chapter Jewels
The chapter has many jewels, some far afield from the book's theme. Take at look at these:
Page 21 - The McKinsey team would stay with a company for five or six months or more, studying a very complicated set of arrangements, until somehow certain patterns became clear. (snip) So we'd spend months clarifying and clarifying, until the issues were all worked out and the answer spoke for itself. (snip) The crucial skill was insight, the ability to see connections.
Page 22 - A theory was a statement about an everlasting truth - not the dressing up of a trivial observation in a lot of formalism.
Page 24 - Dreyfus reinforced all the lessons that Arthur had learned at McKinsey, and provided an ongoing antidote to the economics classes. "He believed in gettng to the heart of a problem," says Arthur. "Instead of solving incredibly complicated equations, he taught me to keep simplifying the problem until you found something you could deal with. Look for what made a problem tick. Look for the key factor, the key ingredient, the key solution." Dreyfus would not let him get away with fancy mathematics for its own sake.
Page 37 - When Brian clearly saw the old and new ways of looking at economics, he listed them in a two column grid. This is an excellent comparative summary mechanism.
Page 38 - You have to look at the world as it is, not as some elegant theory says it ought to be. - For example, this may be the reason XP is succeeding so well.
Page 49 - Martin Luther could nail his ninety-fove theses to the church door of Wittenburg to be read by one and all. But in modern science, there are no church doors; an idea that hasn't been published in an established journal doesn't officially exist.
Chapter Intent
What the chapter seems to be doing is setting the stage for the growth of the new field of complexity, which can explain all kinds of things that were previously unfathomable. It starts with economics because Brian's career and contributions are easily understood compared to the more intricate concepts that come later. It familiarizes us with systems theory, which starts with the key ideas of dynamic behavior and feedback. It shows us how new theories are created, nurtured and released to the world, including the frequent initial skepticism and occasional hostility.