Cloudonomics: The Business Value of Cloud Computing, + Website

System Dynamics

The root cause of issues with forecasting lies in the turbulent, unpredictable nature of complex systems. The gravitationally driven trajectories of two bodies, whether rocks or planets—the earth and the sun, say—can be determined easily using Newtonian physics. Add in a third body—Jupiter, say—and the general problem becomes unsolvable due to a basic issue: sensitive dependence on initial conditions. Such “chaotic behavior” occurs in many realms, including weather, which has been described as subject to the butterfly effect, where a butterfly flapping its wings in Asia might eventually cause a hurricane in the United States. Lest this seem abstract, consider that the 35 million casualties of World War I were arguably precipitated by the death of Archduke Franz Ferdinand of Austria and his wife, Sophie, Duchess of Hohenberg, when their car turned down the wrong street in Sarajevo and encountered an opportunistic assassin.

If the best scientists in the world can’t figure out what happens to three rocks, what are the chances that the rest of us will be able to figure out what 7 billion people will cause to happen when they are shopping and buying and selling at various prices in the complex, chaotic, dynamical system we call the global economy? Each of them is subject to mood swings, cognitive biases, bounded rationality, emotions, fear, uncertainty, irrational behavior. As John von Neumann, the inventor of game theory and the modern computer, wryly commented, “It ...