Book Review: Thinking in Systems

TLDR

A great read with actionable advice, straightforward advice on thinking in systems, and predicting 2nd-order outcomes.

Strengths

• Using specific examples rather than abstract concepts and generalizations.
• It made me see common scenarios in a new light. For example, the comparison between social security and taking care of families, as well as the issue of subsidies for profitable companies.

Weaknesses

• Some of the models felt forced and abstruse.
• Some suggestions had philosophical undertones, which was surprising for a book about rigid systems thinking and theory.

Who should read this book?

Anyone interested in driving change or understanding root causes.

One big lesson

Stocks, inflows, and outflows are everywhere. If A causes B, is it possible that B causes A?

Amazon link – Thinking in Systems: A Primer.

Great quotes

If a factory is torn down but the rationality that produced it is left standing, then that rationality will simply produce another factory.

Tweet

You think that because you understand “one,” you must therefore understand “two” because one and one make two. But you forget that you must also understand “and”

Tweet

Introduction: The System Lens

A system is a set of interconnected things—people, cells, molecules, etc.—that produce a pattern of behavior over time. Understanding a system’s behavior requires more than knowing its constituent elements; it involves recognizing the system as the source of its own challenges.

Chapter One: The basics

• A system must consist of three things:
  1. Elements: visible or invisible tangible things
  2. Interconnectedness: relationships holding the elements together also the flow of information
  3. A function or purpose: the system’s true nature is reflected in its behavior, rather than its stated goals or rhetoric.
• Modifying elements has minimal impact on the system. For example, a football team will remain a football team even if it replaces all its players (it may perform better or worse). Similarly, a system can replace all its components and remain unchanged if its interconnectedness and purpose are preserved.
• Stocks and Flows
  • Stock: the foundation of any system; they are system elements you can see, feel, count, or measure at any time.
  • Flows: stocks change over time through the actions of a flow. A stock is the present memory of changing flows within the system. A stock takes time to change because flows take time to have an effect.
• Important principles
  • All models, whether mathematical or mental, are simplifications of the real world.
  • Stocks are easier to understand than flows, and inflows are similarly easier to grasp than outflows.
  • Stock Levels: As long as the total inflow exceeds the total outflow, the stock’s level will increase. Conversely, the stock’s level will decrease if the total outflow exceeds the total inflow. If the total outflow equals the total inflow, the stock’s level will remain unchanged, and it will be held in dynamic equilibrium.
  • Feedback loops:
    • Balancing feedback loops are goal-seeking or stability-seeking. Each tries to keep a stock at a given value or within a range of values.
    • Runaway loops are reinforcing feedback loops: vicious/virtuous circles that can cause healthy growth or runaway destruction. They are found wherever a system can reproduce itself or grow as a constant fraction of itself.
  • The time it takes for an exponentially growing stock to double in size, known as the doubling time, can be approximated by dividing 70 by the growth rate (expressed as a percentage). For instance, if you invest $100 at a 7% growth rate per year, your investment will double in approximately 10 years.

Chapter Two: A brief visit to the systems Zoo

• Stock with two competing balancing loops – a thermostat
• Stock with one reinforcing loop and one balancing loop – population and industrial economy
  • Dominance: the stronger loop has more pronounced effects on the systemic behavior
• A system with delays: suffers from oscillations, interest hike rates? Delays in a balancing feedback loop make a system likely to oscillate. Economies are inherently oscillatory.
• Two stock systems:
  • A renewable stock is limited by a nonrenewable stock, such as in an oil-based economy. The dynamics of depletion indicate that the larger the initial stock of resources, the more discoveries there will be, and the longer the growth phase will continue to outpace the control measures. This leads to an increase in capital stock and extraction rate, causing the economic decline to occur earlier, faster, and more severely after reaching the production peak.
  • Renewable stock constrained by a renewable stock e.g. a fishing economy.
    • Nonrenewable resources are stock-limited: The entire stock is available at once and can be extracted at any rate, mainly limited by extraction capital. However, since the stock is not renewed, the faster the extraction rate, the shorter the lifetime of the resources.
    • Renewable resources are flow-limited: They can support extraction or harvest indefinitely, but only at a finite flow rate equal to their regeneration rate. If they are extracted faster than they regenerate, they may eventually be driven below a critical threshold and become nonrenewable for all practical purposes.

Chapter Three: Why systems work so well

• Properties of highly functional systems: resilience, self-organization, and hierarchy
  • Resilience: A measure of a system’s ability to survive and persist within a variable environment. The opposite of resilience is brittleness or rigidity.
  • Self-organization: A system’s capacity to make its structure more complex.
  • Hierarchy
• Suboptimization occurs when the objectives of a subsystem take priority over the objectives of the overall system.

Chapter Four: Why Systems Surprise Us

• All our knowledge about the world is just a model. These mental models are not the real world and often fail to represent it accurately. As a result, we can draw illogical conclusions from accurate assumptions or vice versa. Our knowledge is impressive, but so is our ignorance. Systems can fool us, or we can fool ourselves by seeing the world as a series of events.
• System structure influences system behavior, which is evident through a series of events over time. Economists prioritize flows (GNP, etc) over stock (physical assets/capital).
• The greatest complexities arise at the boundaries – there are Czechs on the German side of the border and Germans on the Czech side of the border.
• Layers of Limits: At any point, the most critical input to a system is its limiting factor.
  • Rich countries often transfer capital or technology to poorer ones and wonder why the economies of the receiving countries still don’t develop, without considering that capital or technology may not be the most limiting factors.
  • Growth inevitably depletes or enhances limits, altering what is constraining. There are always limits to growth, whether self-imposed or system-imposed. For example: a city with an excellent quality of life will inevitably attract more people until the available facilities are overstretched and the quality of life declines.
• Ubiquitous delays: Responding to delayed information or responding with a delay leads to inaccurate decisions.
• Bounded rationality: People make reasonable decisions based on information they have but do not have perfect information about distant parts of the system.

Chapter Five: System Traps… and Opportunities

Archetypes are system structures that produce common patterns of problematic behavior.

• Policy resistance refers to “fixes that fail.” For example, despite policies to reduce farming glut, overproduction continues. Similarly, despite the war on drugs, addiction remains as prevalent as ever.
  • Options: Overcome the resistance, even at the risk of potential fallout. Release it, acknowledging that the system is resisting your actions. Discover a method to align the goals of the different subsystems.
• The tragedy of the commons: When people share resources, they all benefit from using them, but they also share the costs if the resources are misused. This means that there isn’t a strong connection between the condition of the resource and the decisions made by the people using it. As a result, the resource can be overused and damaged to the point where it’s no longer available.
  • Options: Encourage users to understand the impact of resource misuse. Consider regulating access or making the resource private to ensure direct consequences for misuse.
• Drift to low performance: When performance standards are influenced by a negative bias towards past performance, it creates a reinforcing feedback loop leading to a drift towards low performance.
  • Options: Keep performance standards high, and let them be enhanced by the best performances instead of being discouraged by the worst. Use the same structure to promote high performance.
• Escalation: When one stock’s value is determined by trying to surpass another’s, a reinforcing feedback loop can lead to an arms race, escalating wealth competition, smear campaigns, and increasing violence. This escalation can lead to extreme outcomes rapidly. Without intervention, the spiral will only stop when someone collapses, as exponential growth is not sustainable.
  • Options: To avoid falling into a trap, the best approach is to not get involved in the first place. If you find yourself in a situation that is getting worse, you can choose not to participate and stop the cycle. Alternatively, you can work to create a new system that includes checks and balances to prevent the situation from escalating.
• Success to the successful—competitive exclusion: If the winners of a competition are consistently rewarded with the means to win again, a reinforcing feedback loop is created. If the loop is allowed to proceed uninhibited, the winners eventually take all, while the losers are eliminated.
  • Options: Diversification enables those losing in the competition to exit that game and start another. There should be strict limitations on the portion of the market share any one winner can attain (antitrust laws). Additionally, policies should be in place to level the playing field by removing some advantages of the strongest players or increasing the advantages of the weakest. Moreover, rewards for success should be designed to not bias the next round of competition.
• Shifting the burden to the Intervenor – Addiction: This situation occurs when a solution to a systemic problem only masks the symptoms without addressing the root cause. Whether it’s a substance that numbs one’s senses or a policy that conceals the real issue, the chosen “solution” hinders the actions that could effectively address the actual problem. If the intervention intended to fix the problem weakens the system’s ability to sustain itself, it triggers a harmful feedback loop. This causes the system to rely more on the intervention and become less capable of maintaining its desired state.
  • Options: The best way to avoid this trap is to prevent getting into it in the first place. Be cautious of policies or practices that only relieve symptoms or ignore signals without addressing the underlying issue. Instead of seeking short-term relief, focus on long-term restructuring.
• Rule beating: Abiding by the letter of the law but not the spirit of it is often seen as a response from lower levels of hierarchy to rigid, unworkable, or poorly defined rules from higher levels. When rules are put in place to govern a system, it can lead to rule-beating behavior, where people appear to be following the rules or achieving the goals, but in reality, they are distorting the system.
  • Options: Create or update rules to encourage creativity not by going against the rules, but by working towards the purpose of the rules.
• Seeking the wrong goal: Don’t confuse effort with result; what you design the system for, the system will produce (which is not necessarily the same as what you intend, like programming). You have the problem of wrong goals when you find something stupid happening “because it’s the rule.” You have the problem of rule beating when you find something stupid happening because it’s the way around the rule. System behavior is particularly sensitive to the goals of feedback loops. If the goals – the indicators of satisfaction with the rules – are defined inaccurately or incompletely, the system may obediently work to produce a result that is not intended or wanted.
  • Options: The solution is to specify indicators and goals that reflect the system’s real welfare. Do not confuse effort with result, or you will end up with a system producing effort, not result.

Chapter Six: Leverage Points – Places to Intervene in a System

12: Numbers: Constants and parameters, like subsidies, taxes, and standards, have limited power despite indicating much action.

11: Buffers: Consider the sizes of stabilizing stocks relative to their flows. Imagine a large bathtub with slow inflows and outflows versus a smaller one with swift flows. This illustrates the difference between a river and a lake. Building and maintaining buffers is costly, and if they become too large, the system can become inflexible due to inertia.

10: Stock and flow structures: Sometimes, the best way to rectify a poorly designed system is by rebuilding it, even though it may be the slowest and most costly method of change.

9: Delays: Adjusting the durations of time in accordance with the rates of change in the system.

8: Balancing feedback loops: The strength of the feedback in relation to the impacts they are trying to correct is crucial. Any balancing feedback loop requires a goal, a monitoring and signaling device to detect deviations from the goal, and a response mechanism.

7: Reinforcing feedback loops: The strength of the driving loop’s gain: A balancing feedback loop self-corrects, while a reinforcing feedback loop self-reinforces. Systems with unchecked reinforcing loops will eventually destroy themselves.

6: Information Flows: the structure of who does and does not have access to information¹.

5: Rules: Incentives, punishments, and constraints: True power lies in the power to control rules.

4: Self-organization: —the power to add, change, or evolve system structure: A system that can evolve can survive almost any change by changing itself.

3: Goals – The purpose or function of the system.

2: Paradigms – The mindset out of which the system – its goals, structure, rules, delays, parameters – arises. Paradigms are the sources of systems.

1: Transcending Paradigms: The system will be more resistant to change the higher the leverage point is.

Chapter Seven: Living in a world of systems

Systems can be understood in a general sense, but this understanding does not necessarily grant control due to other influencing factors such as culture and human reluctance to change.

Conclusion

You can read more book reviews here.