Master the Art of Business
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A Feedback Loop exists in a system when an output becomes the input in the next cycle. Balancing Loops dampen system's outputs with each cycle. Reinforcing Loops amplify the system's output with each cycle. There are Feedback Loops everywhere, and it's critical to notice them to appreciate a system's complexity.
Cause and effect is easy enough to consider, but what happens when the effects become causes themselves?
Feedback Loops exist whenever the output of a system becomes one of the inputs in the next cycle. Feedback is how systems learn — if the system is capable of perceiving its environment, that feedback helps the system understand whether it’s under control and satisfying the required selection tests.
Balancing Loops dampen each system cycle’s output, leading to system equilibrium and resistance to change. Think of dropping a tennis ball from shoulder-height: it’ll bounce up and down, each bounce smaller than the last. Friction and air resistance dampen each cycle, until the energy in the system reaches equilibrium, and the ball sits at rest upon the ground.
Balancing loops stabilize the system, dampening oscillations and keeping the system in a certain state. Perceptual Control systems are usually made up of balancing loops. Going back to the thermostat example: if the temperature of a room is higher than the Reference Level, the cooling system will kick in to move the temperature lower. If the temperature is lower than the Reference Level, the heater will turn on to bring the temperature up. As a result, the system tends to maintain a stable temperature, which is the purpose of the system.
Reinforcing Loops amplify the system’s output with each system cycle. Reinforcing loops tend to lead to runaway growth or decay over time. Think of a price war between two companies, each of which is competing to have the lowest price. Company A lowers their price, then Company B retaliates by moving their price even lower. As long as each company’s reference level stays at “our price must be lower than our competitor’s,” prices will continue to drop until both companies eliminate their Profit Margins on that offering.
Compounding is an example of a positive reinforcing loop. Each cycle of interest payments makes the principle of the next cycle bigger, resulting in an even more interest, continuing the cycle. Over time, accumulated interest can build to enormous sums, which is the purpose of the system.
More often than not, the size of every Stock is influenced by several loops, all pulling it in different directions. Consider your bank account balance: there are Feedback Loops controlling your income, rent/mortgage, food expenditures, and other expenses. You’re constantly evaluating whether each cycle is too much or not enough, which represents a balancing feedback loop. Too much or not enough inflow or outflow causes you to jump into action, which affects the next cycle.
Look around you—there are Feedback Loops everywhere. Once you start noticing them, you’ll fully appreciate the ever-changing complexity of the systems we live in.
"Systems of information-feedback control are fundamental to all life and human endeavor... Everything we do as individuals, as an industry, or as a society is done in the context of an information-feedback system."Jay W. Forrester, systems theorist and professor at MIT
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Master the Art of Business