104

European Journal of Operational Research 30 (1987) 104-109

North-Holland

Nonlinearity in high-order models

of social systems
Jay W. F O R R E S T E R

System Dynamics Group, Sloan School of Management, Massachusetts Institute of Technology, Cambridge,
MA 02139, U.S.A.
Abstract: Historically limitations of mathematical analysis forced exclusion of most nonlinearities from
models of social systems. Computer simulation removed the pressure to focus on linear representations,
but even so, data analysis and model validation methods have perpetuated a bias toward linearity in
models. However, much of real-life behavior arises from nonlinearities. If models are to be good
representations of social systems, there must be unrestricted willingness to incorporate nonlinearity.
Otherwise, we exclude access to much of the available information about the structure and policies that
cause observed behavior. A large fraction of our knowledge about social systems lies in what must
necessarily happen as extreme conditions are gradually approached. The majority of functional relationships are nonlinear, as when two variables are multiplied, for example, sales rate times price to generate a
payment stream. Taking advantage of knowledge about real-life nonlinearities and their crucial contribution to behavior, leads to models that endogenously generate the principal modes of behavior that are
observed in actual systems.
Keywords: Nonlinearity, simulation, economics, social, behavior

I. Nonlinearity in models
Traditionally a strong bias has operated against
incorporating nonlinearity into models of social
systems. Several reasons seem to explain the reluctance to represent nonlinear relationships in models:
(a) Before modem computers and the availability of inexpensive simulation, models of real-life
were limited to equation systems simple enough
that mathematical solutions could be found. Such
solutions are elegant and comprehensive. They are
desirable when they can be obtained. However,
with minor exceptions, complete mathematical
solutions can not be obtained for nonlinear systems. Before computers, when mathematical solutions were the only available technique, necessity
imposed a tradition of ignoring nonlinearity. The
tradition of linear thinking has became so firmly

Received March 1985

established that it has diverted most analysts from

even recognizing the importance of nonlinearities.
(b) Many of the mathematical procedures used
even with simulation models, such as statistical
analysis of data and methods used for model
validation, are severely restricted in their ability to
accept nonlinearity. There has been a reluctance
to give up the linear mathematical procedures,
with the result that models have been biased to fit
the linear procedures at the expense of faithfulness in representing the real world.
(c) The recognition of nonlinearity will usually
destroy the simplicity, elegance, and universality
by which research papers are judged. Junior faculty members in universities enter the nonlinear
world at the risk of their promotions. When one
works in the realm of nonlinear systems, few
universal answers emerge. Nonlinearities cause
'structural shifts' in a system that can alter the
relative importance of different parts of a system.
Behavioral insights obtained for one region of
system behavior can be markedly altered when the

0377-2217/87/$3.50 1987, Elsevier Science Publishers B.V. (North-Holland)

J. W. Forrester / Nonlinearity in high-order models of social systems

internal balance of the system shifts. The elegant

and universal solutions obtainable for simple linear systems give way in nonlinear models to an
experimental evaluation of special cases. Accepting nonlinearity tends to force a person out of the
world of the theorist into the world of the practitioner, a shift that does not match the standards
for promotion in the academic community.
(d) A presumption exists that nonlinear representations of systems are more difficult to work
with than linear approximations. I will argue that
the reverse is true, if one's objective is seeking an
understanding of real-life systems.
In economics, real systems are especially nonlinear, while their representation in models mostly
ignores nonlinear reality. The criticism by Blatt [1]
states the issue:
"Entirely too much of econometric theory is
devoted to the study of linear m o d e l s . . . Y e t linearity is a very severe restriction on a model.
There is excellent reason to believe that no linear
model can be at all a d e q u a t e . . . T h e techniques
used for linear models.., do not extend easily, or
in most cases at all, to nonlinear models."

2. Importance of nonlinearity
We live in a highly nonlinear world. From a
mathematician's viewpoint Kovach observed [7]:
"Strange that these nonlinear phenomena that
abound so widely in nature should be so intractable. It is almost as if Man is to be denied a
complete knowledge of the universe unless he
makes a superhuman effort to solve its nonlinearities .... So far, our efforts to scale the nonlinear
barrier have consisted of chiselling a few footholds
which are low enough so that we can always keep
one foot on linear ground .... There is no general
theory for nonlinear problems, so that it is necessary to develop solutions by means of special
techniques for each type."
In human decision making, the inputs to a decision are perceived nonlinearily. Many variables
when in their normal ranges exert little influence,
but those same variables can dominate all others
when they move outside normal ranges. For example, cash position (liquidity) has little effect on
hiring and production decisions when there is no

105

liquidity difficulty; however, under severe financial restraints, financial condition can over-ride
even demand for product and the condition of
inventories in determining employment and production.
Nonlinearities cause what economists refer to
as "structural changes" in a system. But 'structural change' is usually little more than a term used
to cover an unexplainable behavior. Rather than
referring to structural change, which usually implies an exogenous modification in how the system
is organized, we might better speak of shifting
loop dominance. By shifting loop dominance we
mean the process by which control of a system
moves from one set of feedback loops to another
set, often with dramatic changes in behavior. The
several control loops will all have been present in
the system from the beginning but some lie inactive until conditions trigger them into operation.
The relationship of shifting loop dominance to
nonlinearity has been discussed by Richardson [9,
p. 502]:
"Another consequence of the choice of representation of feedback systems is the way structural
changes are handled. The issue is very important
to scholars in both feedback threads... Scholars in
the cybernetics thread have tended to capture such
structural changes linguistically and sometimes diagrammatically, by 'rewriting' or 'redrawing' system structure... The issue of structural change is
no less important to scholars in the servomechanisms thread, but in their quantitative representations of system structure such phenomena are
captured in nonlinearities. Nonlinear models have
the property that they can shift loop dominance
and endogenously change the structure of feedback loops that are active over any given period of
simulated time. Indeed, from a feedback loop
perspective, this ability to shift loop dominance is
the fundamental reason for advocating nonlinear
models of social system behavior."
The processes behind the typical S-shaped
growth curve serve as a simple example of shifting
loop dominance. Consider a population expanding
toward an upper limit to the carrying capacity of
its environment. When the population is well below the limit, population expands exponentially,
driven by a linear positive feedback loop in which
additions to population increase in proportion to
population itself. The positive feedback loop pro-

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J.W. Forrester / Nonlinearity in high-order models of social systems

duces the initial upward sweeping section of Sshaped growth. But as the limit to population is
approached, a previously dormant linear negative
feedback loop becomes active, interacts nonlinearly with the positive loop, reduces the growth
rate of the positive feedback loop toward zero,
and eventually takes full control to adjust population toward the limit whenever population deviates in either direction from the limit. The two
loops come into operation at different times, First,
the positive feedback loop of growth is in control
during the early exponential growth phase. Later,
the negative feedback loop exerts increasing control to neutralize the positive loop and convert the
system to a goal-seeking search for an equilibrium
at the population limit. Biological and social systems contain numerous structures that move in
and out of dominance as forces shift.
High-order systems usually contain multiple
modes of behavior. For example in a national
economy, one finds the short-term business cycle
with peaks three to seven years apart, the Kuznets
cycle with peaks 15 to 25 years apart, the economic long wave or Kondratieff cycle with peaks
separated by 45 to 60 years, and a noncyclic mode
of unrestrained inflation arising from an increase
in money supply caused by monetizing government deficits. In a linear system, such modes
would simply superimpose and their separate effects would be added to yield the total economic
behavior.
But in nonlinear systems, different modes may
influence one another. The structures producing
the separate modes intersect through nonlinear
coupling points that allow one mode to change the
characteristics of another mode. Consider for example the way the short-term business cycle and
the economic long wave can interact. In the last
few years, both business men and government
officials have been surprised by the unexpected
severity of the recession of 1982 and surprised
again by the vigor of the following recovery. In
fact, recessions and recoveries consistently grew in
amplitude after 1965.
We find the same kind of change in amplitude
of business cycles in the System Dynamics National Model [5]. The National Model is constructed according to the principles of the system
dynamics discipline that was first developed to
deal with growth and stability of industrial enterprises [2].

The National Model is a comprehensive, highorder, very nonlinear representation of the policies
in business, labor, banking, households, and
government that interact to produce economic
behavior. There are no exogenous driving time
series. The behavior is generated entirely by the
internal interacting policies of the system just as
the interactions of the participants generate reallife economic behavior. The Model exhibits all the
major modes of behavior observed in national
economies. Business cycles arise from the interactions of inventories, backlogs, employment, and
production. Contrary to usual economic theory,
the accelerator principle relating investment to
sales does not participate significantly in business
cycles but is central to Kuznets cycles and the
economic long wave [3,8]. The National Model
also manifests stagflation, multiple modes of price
change, and inflation from monetizing government debt.
The economic long wave and business cycles
interact in the National Model to cause an increasing severity of business cycles in the same
way that has been observed in the real economy
since 1965. The world's economies are now at and
beyond a peak in the economic long wave as
indicated by excess manufacturing capacity, excessive debts, rising defaults, rising unemployment,
falling return on investment, stagflation, and declining prices of agricultural land. At such a peak
in the long wave in the National Model, short-term
business cycles become more severe, as they have
also been doing in the actual economy. The increasing amplitude of business cycles arises from
how the long wave affects business cycles. Nonlinearities in the economic system cause the long
wave to change the conditions determining behavior of business cycle. The effect is exerted through
the availability of manufacturing capacity and unemployed labor. As a peak of the long wave is
approached, both excess manufacturing capacity
and unemployment increase. Under the conditions
of idle production inputs, a short-term increase in
demand can be quickly and aggressively met by
business engaging the idle resources; the recovery
is vigorous; output can quickly increase beyond
demand; inventories rise rapidly to larger excesses; then, production must be sharply reduced
in a steeper than expected recession. By contrast,
business cycles were mild during the 1960s; there
was a shortage of both factory capacity and labor;

J. W. Forrester / NonlineariO, in high-order models of social .~vstems

business was unable to overproduce at the peaks;

and unsatisfied demand lifted any tendency toward recessions. The economic long wave widens
and narrows the range within which business cycles
can move.
As we observe behavior in the National Model,
and correspondingly interpret the history of actual
economic behavior, mild recessions between 1945
and 1965 were not due to Keynesian economics or
fine tuning through monetary policy. Instead, the
economic long wave was working through nonlinear couplings to produce weak business cycles
while the long wave was expanding, and then
shifted to produce growing business cycles as the
long wave reached its peak and started to contract.
Modes of behavior can exist that are unstable
at small amplitudes, but bounded by nonlinearities at large amplitudes. By an unstable mode we
mean an oscillation that tends to grow in amplitude from cycle to cycle. In a linear system, the
amplitude of such a mode would grow without
limit, but unlimited expansion is impossible in an
actual system. Real systems with persistent unstable modes contain nonlinearities that bound the
possible excursions. We see the economic long
wave, which is responsible for the great depressions of the 1830s, 1890s, and 1930s, and for the
presently unfolding economic cross currents, as
being such an unstable oscillatory mode [10]. The
long wave is a vigorous and persistent mode with
only a small (some 30 percent) variation in periodicity. An aggressive, sustained oscillation with
small differences in intervals between peaks suggests a bounded unstable mode, In the National
Model, if the Model is set in equilibrium and then
disturbed, the long-wave mode begins to develop
and will reach full amplitude after two or three
cycles. The long-wave fluctuation in the National
Model is unstable, that is, it grows in amplitude
from a small beginning. We believe that the economic long wave in industrial economies is likewise an unstable mode. As the amplitude grows, it
is limited by a multitude of gradually increasing
nonlinearities. There are no sharp discontinuities
in the model or in real life but as either upper or
lower limits are approached, further movement
becomes more and more difficult.
The wide range of realistic behavior inherent in
the System Dynamics National Model arises from
its high-order complexity and the attention that

107

has been given to correctly incorporating into the

Model nonlinearities that exist in the real economic system. As an example of nonlinear content, the decision function that orders capital plant
for a production sector contains 18 multiplications
and divisions and 8 nonlinear table relationships.
Such a rich representation of nonlinear relationships allows the ordering process in the Model to
respond sensibly to a wide range of conditions
and to differing balances of forces under various
economic circumstances.

3. Use of nonlinearities

By making extensive use of nonlinearities, the

task of constructing realistic models of social systems becomes easier. Use of information about
nonlinearities opens the way to many more inputs
to model construction from knowledge about the
real system. Proper inclusion of nonlinearities
matches a model better to the system it represents.
Much of the information we possess about real life
is information about nonlinear control policies.
Nonlinear models have more points of contact
with the real systems they represent, and lend
themselves to a broader array of validation tests
than do linear models [6].
Knowledge about nonlinearities is to be found
primarily in the mental data base [4]. The information we possess about a social system can be
divided into that stored in people's heads, that in
descriptive written form, and that which has been
measured and for which numerical data exist. The
mental store of knowledge is overwhelmingly more
comprehensive in revealing system structure, the
information available at decision-making points,
and the nonlinear nature of decision-making
criteria.
A wealth of knowledge exists about the general
nature of nonlinear relationships for which there
is no numerical data. Such descriptive knowledge
can be used in model building. The knowledge is
in people heads and can be deduced from the logic
of how a particular part of a system must necessarily operate. In many situations, slopes of relationships, intercepts, and asymptotes are adequately known, even though the real system may
never have operated in the corresponding regions
and no historical data exists. It is important to use
such knowledge about extreme boundaries be-

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J.W. Forrester / Nonfinearity in high-order models of social systems

cause they set limits on the degree of uncertainty

that can exist in the midrange of a function.
Representation of such limiting conditions makes
a model far more robust and prepares it to operate
properly under possible future conditions that have
not been encountered in the past.
As an example of using descriptive information
derived from boundary conditions, consider the
relationship between the fraction of maximum
sales that can be realized as that fraction varies
with changing delay in delivering the product. The
vertical axis for such a function, is "Percent of
Maximum Sales" (given a particular combination
of other conditions), and the horizontal axis is
"Delivery Delay (Time units)". The 100 percent
point for sales is at the zero delivery delay position; as far as the effect of delay on sales is
concerned, that is the best that can be done. What
happens as delivery delay increases? For small
increases in delay, sales do not drop, the curve is
horizontal as long as delivery delay is below the
awareness level of the customer. But as delay
increases further, sales begin to fall and do so with
increasing steepness as delay rises to the point of
serious concern to the customer. Then the curve
flares out to become asymptotic to the horizontal
axis as sales approach but do not reach absolute
zero with increasing delay (for any large delivery
delay at which a sale is possible, there remains
some small probability of a sale at a still higher
delay). Once the intercept, the initial slope, and
the asymptotic end section have all been determined by logical consideration of the nature of
the market, little freedom remains for filling in the
remainder of the functional relationship. Sensitivity tests of alternative functions lying within the
remaining range of plausible choice will usually
show little effect on behavior.
A rich representation of nonlinearities leads to
a model that is relatively insensitive to parameter
values. Being insensitive to parameter values is
also a characteristic of most social systems. If the
real system is insensitive, so should be the model.
As an example of insensitivity to a reasonable
range of policies, at the present time many countries are exhibiting similar economic problems-rising unemployment, excess manufacturing
capacity, rising debt, and inflation. If such economic difficulties were sensitive to differing laws,
cultures, monetary authorities, and political
ideolgies, then there would not be so much over-

lap in symptoms of economic distress. In fact, the

operating point of a system tends to move along
the changing slopes of its nonlinearities until it
finds an operating region that is determined more
by the structure of the system than by plausible
differences in parameter values. In a high-order
nonlinear system, one can move many parameters
within a plausible range with little effect on essential behavior.

4. Summary
Nonlinearities play a dominant role in determining the puzzling and troublesome characteristics of the real world in which we five. Social
scientists, one would like to assume, are devoted
to understanding why the world behaves the way
it does, and, from that understanding, to creating
a more humane and safer society. Such better
understanding will probably be achieved only
through models that can be used for investigating
the essential characteristics of the real world.
But is the present modeling of social systems
closely enough aligned with the nature of the
systems that the models are supposed to represent? It seems that most models do not pass the
test. Models have traditionally been dominated
more by the desire to follow the easy road in
model building than by dedication to capturing
the essence of the real world that is being modeled.
The prevailing attitude of ignoring the full significance of nonlinearity is one of several ways in
which models are created at variance with the
structure and processes of the real world. Dealing
with nonlinear systems is less elegant and less
precise than coping with linear systems. In nonlinear systems, results are less generalizable, but more
relevant. Sweeping theories are replaced by
bounded classes of rules of thumb. If the nonlinear world is forthrightly attacked, the work of the
social scientist will become more like that of a
professional in engineering or medicine and less
like that of a theorist in mathematics or the physical sciences.
Only through more acceptance of the nature of
the real world, and less insistence on following
traditional mathematical and modeling'methodologies, will the social sciences begin to couple with
the concerns, fears, and goals of the public.

J.W. Forrester / Nonlinearity in high-order models of social systems

References
[1] Blatt, John, "How economists misuse mathematics", in:
Alfred S. Eichner (eds.), Why Economics Is Not Yet a
Science, M.E. Sharpe, Armonk, NY, 1983.
[2] Forrester, Jay W., Industrial Dynamics, The MIT Press,
Cambridge, MA, 1961.
[3] Forrester, Jay W., "Growth cycles", De Economist 125 (4)
(1977) 525-543.
[4] Forrester, Jay W., "Information sources for modeling the
national economy", Journal of the American Statistical
Association 75 (371) (1980).
[5] Forrester, Jay W., "An alternative approach to economic
policy: Macrobehavior from microstructure", in: Nake M.
Kamrany and Richard H. Day (eds.), Economic Issues of
the Eighties, The Johns Hopkins University Press, Baltimore-London, 1979.

109

[6] Forrester, Jay W., and Senge, Peter M., "Tests for building confidence in system dynamics models", System Dynamics, Studies in the Management Sciences 14, NorthHolland, Amsterdam, 1980.
[7] Kovach, Ladis D., "Life can be so nonlinear", American
Scientist 48 (2) (1960) 218-225.
[8] Low, Gilbert W., "The multiplier-accelerator model of
business cycles interpreted from a system dynamics perspective", in: Jorgen Randers (ed.), Elements of the System
Dynamics Method, The MIT Press, Cambridge, MA, 1980.
[9] Richardson, George P., The Evolution of the Feedback
Concept in American Social Science, Ph.D. thesis, Sloan
School of Management, Massachusetts Institute of Technology, Cambridge, MA, 1984.
[10] Sterman, John D., "A behavioral model of the economic
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