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System dynamics: Portraying bounded rationality

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  • Morecroft, John DW

Abstract

This paper examines the linkages between system dynamics and the Carnegie School in their treatment of human decision making. It is argued that the structure of system dynamics models implicitly assumes bounded rationality in decision making and that recognition of this assumption would aid system dynamicists in model construction and in communication with other social science disciplines. The paper begins by examining Simon's 'principle of bounded rationality' which draws attention to the cognitive limitations on the information gathering and processing powers of human decision makers. Forrester's 'Market Growth Model' is used to illustrate the central theme that system dynamics models are portrayals of bounded rationality. Close examination of the model formulation reveals decision functions involving simple rules of thumb and limited information content. Finally, there is a discussion of the implications of Carnegie philosophy for system dynamics as it affects communication, model structuring, model analysis and future research.

Suggested Citation

  • Morecroft, John DW, 1983. "System dynamics: Portraying bounded rationality," Omega, Elsevier, vol. 11(2), pages 131-142.
    • Handle: RePEc:eee:jomega:v:11:y:1983:i:2:p:131-142
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    Cited by:

    1. Federico Barnabè, 2011. "The dynamic nature of strategy: reflections on Kim Warren’s strategic management dynamics," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 15(3), pages 515-532, August.
    2. Edoardo Mollona, 2008. "J. Morecroft, Strategic Modelling and Business Dynamics. A Feedback Systems Approach," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 12(2), pages 213-217, May.
    3. Lane, David C., 1999. "Social theory and system dynamics practice," European Journal of Operational Research, Elsevier, vol. 113(3), pages 501-527, March.
    4. Oliva, Rogelio, 2003. "Model calibration as a testing strategy for system dynamics models," European Journal of Operational Research, Elsevier, vol. 151(3), pages 552-568, December.
    5. Santosh Kumar Prusty & Pratap K. J. Mohapatra & C. K. Mukherjee, 2017. "Using Generic Structures in System Dynamics Model Building: Reflection from Modeling for Indian Shrimp Industry," Systemic Practice and Action Research, Springer, vol. 30(1), pages 19-44, February.
    6. Turner, Benjamin L., 2020. "Model laboratories: A quick-start guide for design of simulation experiments for dynamic systems models," Ecological Modelling, Elsevier, vol. 434(C).
    7. van Ackere, Ann & Haxholdt, Christian & Larsen, Erik R., 2013. "Dynamic capacity adjustments with reactive customers," Omega, Elsevier, vol. 41(4), pages 689-705.
    8. Sterman, John & Richardson, George P. & Davidsen, Pål I., 1987. "Modeling the estimation of petroleum resources in the United States," Working papers 1900-87., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    9. Hines, James H., 1987. "A behavioral theory of interest rate behavior," Working papers 1951-87., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    10. John Hayward & Graeme P. Boswell, 2014. "Model behaviour and the concept of loop impact: A practical method," System Dynamics Review, System Dynamics Society, vol. 30(1-2), pages 29-57, January.
    11. Hazhir Rahmandad, 2015. "Connecting strategy and system dynamics: an example and lessons learned," System Dynamics Review, System Dynamics Society, vol. 31(3), pages 149-172, July.
    12. Lane, David C. & Rouwette, Etiënne A.J.A., 2023. "Towards a behavioural system dynamics: Exploring its scope and delineating its promise," European Journal of Operational Research, Elsevier, vol. 306(2), pages 777-794.
    13. Yun, JinHyo Joseph & Ahn, Heung Ju & Lee, Doo Seok & Park, Kyung Bae & Zhao, Xiaofei, 2022. "Inter-rationality; Modeling of bounded rationality in open innovation dynamics," Technological Forecasting and Social Change, Elsevier, vol. 184(C).
    14. Sterman, John, 1984. "An integrated theory of the economic long wave," Working papers 1563-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    15. Sterman, John., 1986. "Testing behavioral simulation models by direct experiment," Working papers 1752-86., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    16. Sterman, John, 1987. "Modeling managerial behavior--misperceptions of feedback in a dynamic decisionmaking experiment," Working papers 1933-87., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    17. Sterman, John., 1983. "A simple model of the economic long wave," Working papers 1422-83., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    18. Bassi, Andrea M. & Powers, Robert & Schoenberg, William, 2010. "An integrated approach to energy prospects for North America and the rest of the world," Energy Economics, Elsevier, vol. 32(1), pages 30-42, January.
    19. Sarpong, David & Maclean, Mairi & Davies, Clayton, 2013. "A matter of foresight: How practices enable (or impede) organizational foresightfulness," European Management Journal, Elsevier, vol. 31(6), pages 613-625.
    20. Barlas, Yaman & Yasarcan, Hakan, 2006. "Goal setting, evaluation, learning and revision: A dynamic modeling approach," Evaluation and Program Planning, Elsevier, vol. 29(1), pages 79-87, February.

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