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Business Dynamics

y and System
y Modelingg
Chapter 8: Linking Feedback with
Stockk & Flow
l Structure

Pard Teekasap
Southern New Hampshire University

Outline
1. First-order linear feedback systems
2. Positive feedback and exponential growth
3. Negative feedback and exponential decay
4. Multiple-loop systems
5
5. SS-Shaped
Shaped growth

Quiz
Take
k an ordinary
d sheet
h off paper. Fold
ld it in h
half.
lf
Fold the sheet in half again. The paper is still
less than a millimeter thick.
• If yyou were to fold it 40 more times,, how thick
would the paper be?
• If you folded it a total of 100 times
times, how thick
would it be?
☺ Only
O l iintuitive
t iti estimate,
ti t no need d ffor calculator
l l t
☺ Give your 95% confidence interval

000 kms thick More than the distance from the earth to the moon • 100 Folds = 850 trillion times the distance from the earth to the sun . Paper Folding • 42 Folds = 440.

First order Linear Feedback System First-order • Order of a system of loop is the number of state variables • Linear systems are systems in which the rate equations are linear combination of the state variables and any exogenous inputs • dS/dt = Net Flow = a1S1+aa2S2+…+a … anSn+bb1U1+b b2U2+…+b … bmUm .

Basic Structure and Behavior Goal State of the System State of the System Time Time + State of the Goall G System (Desired + State of System) Net Increase R State of the - S t System B Rate Discrepancy + + Corrective Action + .

Positive Feedback and Exponential Growth • First-order positive feedback loop • The state of the system accumulates its net inflow rate • The h new iinflow fl d dependsd on the h state off the h system .

Structure for first-order. linear positive feedback system .

g = fractional growth rate (1/time) . Solution for the linear first-order system Net inflow = gS = dS/dt dS = gdt dt S dS ∫S ∫ = gdt ln(S ) = gt + C S(t) = S(0)exp(gt) S = State.

linear positive feedback dS/dt = Net Inflow Rate = gS .Phase plot diagram for the first-order. w Rate (units/ttime) Net Inflow g 1 0 0 State of the System (units) Unstable Equilibrium .

4 6 512 5.96 State of the System State of the System (Units) 8 Ne e) (left scale) w (units/time et Inflow (uniits/time) t = 1000 768 7 68 7.28 (right scale) 0 0 0 0 200 400 600 800 1000 0 128 256 384 512 640 768 896 1024 Time State of System (units) .24 896 8.7% St Structure t Behavior 10 1024 10.12 t = 900 Net Inflow 4 384 3. Exponential growth: Phase plot VS Time plot • Fractional growth rate g = 0.68 640 6.56 2 t = 700 128 Net Inflow 1.84 t = 800 256 2.

g. Rule of 70 • Exponential growth has the property that the state of the system y doubles in a fixed period p of time • 2S(0) = S(0)exp(gtd) • td = ln(2)/g • td = 70/(100g) • E. E an iinvestment t t earning i 7%/ 7%/year d doubles bl iin value after 10 years .

1t d Time Horizon = 1t d 2 2 stem (units) stem (units) State of the Sys State of the Sys 0 0 0 2 4 6 8 10 0 20 40 60 80 100 Time Horizon = 100t d Time Horizon = 10t d 1 10 30 1000 ystem (units) State of the System (units) State of the Sy 0 0 0 200 400 600 800 1000 0 2000 4000 6000 8000 10000 . Misperception of Exponential Growth: it’s not linear Time Horizon = 0.

Negative Feedback and Exponential Decay .

q Increasing the state of the system increases the decay rate rate. Negative feedback • Net Inflow = . moving the system back toward zero .Net Outflow = -dS d = fractional decay rate (1/time). It is the average lifetime of units in the stock • S(t) S( ) = S(0) S(0)exp(-dt) (d) • This system y has a stable equilibrium.

Phase plot for exponential decay Net Inflow Rate = .Net Outflow Rate = .dS Stable Equilibrium ow Ratte 0 s/time) State of the System (units) Net Inflo (units 1 N -d d .

Exponential decay: Phase plot VS Time plot Structure 0 t = 40 t=30 me) ow (units/tim t = 20 t = 10 Behavior Net Inflo 100 10 t=0 State of the System (left scale) Net Inflow (un -5 0 20 40 60 80 100 State of System (units) 50 5 nits/time) Fractional decay rate d = 5% Net Inflow (right scale) 0 0 0 20 40 60 80 100 Time .

S)/AT • S* = d desired i d state off the h system. A AT = adjustment time or time constant • AT represents how quickly the firm tries to correct the shortfall . Exponential decay with the goal not zero • In general. the goal of the system is not zero and should be made explicit p • Net Inflow = Discrepancy/AT = (S*.

S) + dS/dt = (S* .Labor)/AT . Net Hiring Rate Adustment Time Labor = Labor Shortfall/AT Shortfall + = (Desired Labor . Rate + B AT .Inventory)/AT Desired Labor Labor Force Net Hiring . Rate + B . Net Production Rate AT Inventory = Inventory Shortfall/AT Adustment Time + Shortfall = (Desired Inventory . Rate + B .S)/AT Examples Desired Inventory Inventory Net Production .First-order linear negative feedback system with explicit goal General Structure dS/dt S S* State of Desired State of Net Inflow the System the System . dS/dt = Net Inflow Rate AT Adustment Time Discrepancy dS/dt = Discrepancy/AT (S* .

Phase plot for first-order linear negative feedback system with explicit g goal Net Inflow Rate = .Net Outflow Rate = (S* .S)/AT 1 ow Rate Stable -1/AT (units//time) Equilibrium Net Inflo 0 State of the System S* (units) .

Exponential approach to a goal 200 m (units)) e System 100 ate of the Sta 0 0 20 40 60 80 100 .

S(0))exp(-t/AT) • 0. Time constants and half half-lives lives • S(t) = S* .70AT = 70/(100d) .5 = exp( exp(-tth/AT) = exp( exp(-dt) dt) • th = ATln(2) = ln(2)/d ≈ 0.(S* .

Goal seeking behavior Goal-seeking 2000 Desired Labor Force 1. AT = 2 weeks 1500 (peo 1250 1000 0 2 4 6 8 10 12 14 16 18 20 22 24 Net Hiriing Rate e/week) 0 (people 0 2 4 6 8 10 12 14 16 18 20 22 24 Time (weeks) . AT = 4 weeks 1750 Labor Force ople) 2.

Goal seeking behavior Goal-seeking 2000 AT = 4 weeks 1500 or Force eople) Does the workforce 1000 (pe Labo Desired Labor Force equal the desired 500 workforce? 0 0 2 4 6 8 10 12 14 16 18 20 22 24 Net Hiriing Rate e/week) 0 (people 0 2 4 6 8 10 12 14 16 18 20 22 24 Time (weeks) .

Solution .

Solution .

DR • Net Birth Rate = bP – dP = (b-d)P • b = fractional birth rate. Multiple loop Systems Multiple-loop • Assuming that we disaggregate the net birth rate into a birth rate BR and a death rate DR • Population = INTEGRAL(Net Birth Rate. Population (0) • Net Birth Rate = BR . d = fractional death rate .

Phase plot for multiple linear first- order loops Structure (phase plot) Behavior (time domain) b>d b E Exponential ti l Growth G th Birth and Death Rates 1 Birth Rate Net Birth Rate Population 1 b-d 0 1 Death Rate -d 0 0 Population 0 Time b=d Equilibrium Birth and Death Rates Birth Rate ulation Net Birth Rate 0 Popu Death Rate 0 0 Population 0 Time b<d Exponential Decay Birth and Death Rates Birth Rate ulation 0 Popu Net Birth Rate Death Rate 0 0 Population 0 Time .

Nonlinear first-order systems: S- Shaped growth • No real quantity can grow forever. It will eventuallyy approach pp the carrying y g capacity p y of its environment • As the system approaches its limits to growth growth. it goes through a nonlinear transition from a regime where positive feedback f dominates to a regime where negative feedback dominates • It’s a S-Shaped growth .

Diagram for population growth with a fixed environment • Net Birth Rate = BR – DR = b(P/C)P – d(P/C)P Population Death Birth Rate R B Rate + + + + B + B Fractional Population Fractional Relative to Birth Rate Death Rate . Carrying + Capacity - Carrying Capacity .

Nonlinear birth and death rate • Sketch the graph showing the likely shape of the fractional birth and death rate Rates nd Death R me) (1/tim al Birth an 0 0 1 Large Fractiona Population/Carrying Capacity (dimensionless) .

Nonlinear relationship between population density and the fractional ggrowth rate Rates Fractional Birth Rate Fractional Fractiional Birrth and Death R Death Rate (1/time) 0 0 1 Fractional Net Birth Rate Population/Carrying Capacity (dimensionless) .

Phase plot for nonlinear population system Positive Feedback Negative Feedback Dominant Dominant Death Rate ates e) uals/time Death Ra Bi th Rate Birth R t 0 • •1 Birrth and D (individu (P/C)inf 0 Stable Unstable Equilibrium q Equilibrium Net Birth Rate Population/Carrying Capacity (dimensionless) .