Example of how we have been trained to ignore feedback loops of systems we deal in and deal with

A Systems Thinker will tell you that one of the many starkest differences between Systems Thinking and Analytical Thinking is the ability to perceive feedback loops. When an scientifically minded technologists reads an article about feedback loops and says, "Got it. Makes sense. We've learned it."

But is merely knowing that feedback loops exist the same as learning? The true learning is ability to detect feedback loops in real world systems in which we deal in and deal with - because once we can do that, we design systems differently, operate them differently, and intervene in them differently.

I could give countless examples of well-intentioned, scientifically minded technologists who talk about feedback loops but fail to detect them in practice. Why? Because they have been methodically trained to ignore them. You see it in their conversations, their LinkedIn posts, their root cause analyses—everywhere they operate with a rigid, linear, cause-and-effect mindset, devoid of feedback loops.

Let's put this to the test with a simple exercise. Our real world are way complex than the example.

The Investment Offer

You have an investment opportunity. The deal is simple:

• You invest $100.
• Every month, we flip a coin.
• If you guess correctly, you gain 50%, and your investment grows to $150.
• If you guess wrong, you lose 40%, and your investment drops to $60.
• The process repeats for newer amount for 5 years meaning 60 coin flips
• If your balance ever falls below $5, you're out.

Would you take this deal?

Most people, trained in probability and risk analysis, will instinctively think:

• 50% chance to win → Expected gain: $50
• 50% chance to lose → Expected loss: $40
• Net expected gain: $10 per round

The numbers look favorable, and the law of large numbers suggests you'll come out ahead in the long run. This is the way we all have been taught to think. I have studied statistics for years, this is the way probability and expectations are taught. But this thinking is dead wrong. Most people in this game will lose money. Lose mean lose crazy amount of money many or even most will be out of the game. Why ? For a simple reason, there is a feedback loop that you are failing to see.

For people who are celebrating, that I had decided not to take the deal, but a good outcome mean nothing unless you have a good explanation because a bad explanation may get to short term lucky decision and will kill you in long term. So whatever explanation you have for which you did not invest, lets put that explanation to test. Here is the new deal for those who did not decide to take first deal

Put 100$ to enter the deal. Every month for 5 years, 60 months

• If heads, you gain $50, take $50 out and keep $100 for next month
• If tails, you lose $40, but you can reinvest $40 of your own money to to make it $100 and stay in game or loose all.

Would you take this second offer? You better take this offer, because it's a good one. If you do take this offer, is the explanation for first first deal still hold true. If not you still does not understand why option #1 is bad option.

So what's the difference between two options? The first offer contains a hidden feedback loop— or a visible feedback loop that most analytically trained minds does not know how to see. They analyze parts, break systems into discrete steps, and miss the reinforcing effects that drive systems toward collapse.

In the second version, the feedback loop of option #1 does not exist, so your expected gain $10 per round holds true.

Now that I have told you that there is a feedback loop in #1, you might try to see it more intentionally. Some may find it and would say ah!! that makes sense. But what if this offer was not to challenge your understanding, meaning you had no idea that Manish is putting me into some trap, so you won't thinking this very hard. At times many making decision opposite of what I am proposing, because they know I am trapping them . But if you do that, you are just playing game theory blindly. In real life an investor would have taken your for ride and they do all the time.

But I am not an investment advisor. I am a Systems Theacher[not a typo], creating conditions for people to think. There are feedback loops all around you. If you struggle to see feedback loop in above question, think how many feedback loops you are ignoring in your organizations. So you know we make the case that why DevOps, Agile, Lean all fails in software world because feedback loops are base principle of those framework which no one teach us how to observe them. If interesting in learning systems thinking and how to observe feedback loops join[just not visit] our community and WhatsApp Group and we will update you when next set of courses become available for you to join.

Now tha that you know #1 is bad offer, think of explanation of why it's a bad offer and easy to come up with explanation when you know the answer. Without answer your brain would have most probably pick up #1 as good option, but it has to do with how we have been taught to ignore feedback loop in scientific, engineering and technological trainings. If you truly believe in learning systems, we suggest you stop building on top of what you already know but question limitation of analytical thinking and learn Systems Thinking,

Answer:

Arpit Waghmare explained this well.

I haven't done the math here for multiple loops but it appears that a 40% loss is more hurting than a 50% increase. Say we lose $40 in one flip. We are left with $60. Now even if we win we only get back to $90. On the other hand if we win first and get to $150. Then we lose we get to $90 again. The system seems loaded against us to lose 10% even if the flips are even.

My Response :

~Arpit The power of understanding is such that most of the time full math not required, understanding allows us to eliminate wrong choice without calculation and only if there are multiple right choices, we may need calculation.

You are perfectly right, the systems are stacked against us. It's a terrible offer and most people lose all their money in after few throw. Though you are right you job is half done. If were to make your boss understand this, one person who has PhD in statistics would say, it's a good offer because 50$ upside , $40 downside so total $10 upside in first round and after each round same proportion is of upside and downside is true so in long term we will be good. The person is doing wholistic thinking at space level , ergodic systems. You are doing whollistic thinking over time HT, you lose 10% or you have TH you lose 10%. So it lose lose offer. You boss is confused , you both seem to be right saying opposite stuff. I agree that you right, but whats' wrong with my argument. I can tell you nearly everyone will jump for an investment which has 50% upside and 40% downside each period. I will write about it tomorrow, but if you read my write up , there is feedback loop in #1 and no feedback loop on #2 propsal. Can you detect the feedback loop ?

This is the reason Einstein said " "Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn't … pays it." , because compound interest can be put into algebric equation but has to be understood in terms of feedback loops, which we don't teach student the true nature of it. That is the reason some marwardi who never learned algebra of compound interest understand how it works better than one who have learn math of it. I start my feedback loop modeling with compound interest with use of any algebraic formulas. Same loop is playing here.

So in the first case, the final amount is a function of the initial amount. It's exactly like compound interest, meaning the amount of money you end up with is a function of the return rate and the original amount. Compound interest is a feedback loop—the return you get is a function of the return rate and the total amount. The total amount is a function of the return you get. So when a feedback loop exists, you need to analyze the behavior over time. In this case, thinking about the whole over period over time will result in either Head and Tail or Tail and Head, both of which will lead to a 90% return loss or a 10% loss over two flips. So you have to be lucky to make money here. Most people will end up holding less than a dollar after maybe 20 coin flips or so.

In the second case, the amount you make or lose is not a function of the amount you initially put in. So return and loss are independent of the total amount. There is no feedback loop. Therefore, any calculation of possible outcomes using expectations (outcomes in a given space) or over time will lead to the same result. Because it's easy to apply math for outcomes in a given space and because there are rarely any feeback loop in analytical sciences , we have been trained to use space based calculation.

Now, nearly all management systems, because they are living systems, have feedback loops in them, whereas nearly all studies in analytical sciences such as Physics, Chemistry, Math, and Probability do not. So when scientifically minded technologists go into management or system design—such as software development or organizational systems—we strongly suggest they learn Systems Thinking. Feedback loops then become very intuitive to them, and they make better managerial decisions. Another reason to learn Systems Thinking.

You will make much better financial decision if you understand this concept intuitively because all financial returns have feedback loops in them . Way better way to model the financial systems as feedback loop than in linear algebraic formulas.

tagging , I hop you like my answer. Join our WhatsApp Group where we discuss such topics.