Complex Adaptive Systems

Complex Adaptive Systems consists of

  1. A group of heterogenous agents. Bees in a hive, investors in a stock market, neurons in the brain and ants in a colony are some of the examples of agents.
  2. The agents interact with each other. These interactions create a structure called as emergence.
  3. The emerging structure behaves like a higher level system and is completely different from the characteristics of an agent.

You cannot predict the behavior of the whole by looking and studying the individual agents. In the book Think Twice - Michael writes

Even though the individual ants are inept, the colony as a whole is smart. The whole is greater than the sum of the parts. The inability to understand the system based on its components prompted Philip Anderson, a physicist and Nobel Prize winner, to draft the essay, “More Is Different.” Anderson wrote, “The behavior of large and complex aggregates of elementary particles, it turns out, is not to be understood in terms of the simple extrapolation of the properties of a few particles. Instead, at each level of complexity entirely new properties appear.” If you want to understand an ant colony, don’t ask an ant. It doesn’t know what’s going on. Study the colony.

Yellowstone National Park

Yellowstone National Park is located in the United States. It was formally established in the year 1872. The park is a home for Elk, Bison and Antelope. These animals started to disappear due to hunters and poachers. In order to increase the animal population the government took special care by feeding them really well.

After few years of feeding the elk population started to increase. They started to overgraze which resulted in depletion of plants. Because of this soil erosion occurred. This resulted in the reduction of aspen trees. Beaver population reduced as they consume the aspen trees. Beavers are responsible for building dams.

Beavers and their dams play an important role in nature. Because of the dramatic effects their dams have on surrounding ecosystems, these mammals are considered a keystone species. By constructing dams they create wetlands which attract fish, ducks, frogs and other creatures.

The entire ecosystem got disturbed. This resulted in the death of 60% of the elk population by 1920. The authorities still did not understand that the cause of all this was the result of overfeeding the elk population. They assumed that the death of elk is due to the predators in the park. They went ahead and killed the wolves, mountain lions, and coyotes. The more they killed the worse the situation became. The cause and effect is not predictable in a complex adaptive systems. The key take away is

Addressing one component of a complex system can have unintended consequences for the entire system.

Excerpt from the book Think Twice

They had been playing God for ninety-five years and everything they did seemed to make the park worse. In their attempts to manage this beautiful wild area, they seemed caught in a terrible ratchet, where each mistake made the park worse off and no mistake could be corrected.

Lehman Brothers

In 2008 investment bank Lehman Brothers went bankrupt. This created a global financial turmoil which nobody expected. Excerpt from the book Think Twice

The U.S. Government’s decision to allow Lehman Brothers, the investment bank, to fail in September 2008 is a good illustration. The government’s position was that since the market largely understood Lehman’s poor financial condition, it could absorb the consequences. But the bankruptcy announcement roiled global financial markets because Lehman’s losses were larger than people thought initially, contributing to an increase in global risk aversion. Even parts of the market that were perceived to be safe, like money market funds, received a jolt. For example, the Reserve Primary Fund, one of the oldest and largest money market funds in the United States, announced it had lost money for its fund holders because the Lehman Brothers debt that it held had been wiped out. The announcement shocked investors and undermined confidence in the broader financial system.

Points to remember

When you are dealing with complex adaptive systems you need to remember that

  1. Extrapolating agent level behavior does not let you predict the behavior at the system level.
  2. Addressing one component of a complex system can have unintended consequences for the entire system.
  3. The whole is greater than the sum of the parts.
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