Archive for March, 2010

Converting a Sector-based Model to Modules

March 17th, 2010 5 comments

I generally do not use modules to build very small models (only a couple of stocks and flows), which may then lead me to use sectors as the model grows because they are very convenient.  By the time I have three sectors, though, it starts to become clear that I should have used modules.  I will then need to convert my sector-based model into a module-based model.  Historically, I also have a number of sector-based models that are crying to be module-based.

Converting from sectors to modules is not very difficult:

  1. Make sure there are no connections or flows between sectors.  Replace any of these with ghosts in the target sector.
  2. In a new model, create one module for every sector.
  3. Copy and paste the structure from each sector into its corresponding module.
  4. Connect the modules:  At this point, the model structure has been rearranged into modules, but none of the modules are connected.  The ghosts that were in the sectors became real entities when they were pasted into the modules.  Go back to identify all of these connections and reconnect them in the module-based model.

Stepping Through a Sample Model

Let’s walk through an example.  A small sector-based model is shown below (and is available by clicking here).


This model violates what I would call good sector etiquette:  there are connectors that run between the sectors.  This is often useful in a small model such as this because it makes the feedback loops visible.  However, in a larger model, this can lead to problems such as crossed connections and difficulty in maintaining the model because sectors cannot be easily moved.

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What are “Mental Models”?

March 12th, 2010 14 comments

Editor’s note: This is part one of a two part series on Systems Thinking and mental models

In writing and teaching people about Systems Thinking, we often refer to “mental models”.  For some people, this comes as a bit of a surprise, because the context usually involves building models with the iThink or STELLA software.  They don’t expect us to start talking metaphysically about thinking.  “Is this about philosophy or modeling software?” they may wonder.  The software is actually a tool to help construct, simulate and communicate mental models.

Let’s define the term model: A model is an abstraction or simplification of a system.  Models can assume many different forms – from a model volcano in a high school science fair to a sophisticated astrophysical model simulated using a supercomputer.  Models are simplified representations of a part of reality that we want to learn more about.  George Box stated: “Essentially, all models are wrong, but some are useful”.  They are wrong because they are simplifications and they can be useful because we can learn from them.

So, what is a “mental model”?  A mental model is a model that is constructed and simulated within a conscious mind.  To be “conscious” is to be aware of the world around you and yourself in relation to the world.  Let’s take a moment to think about how this process works operationally.

Thinking about trees

Imagine that you are standing outside, looking at a tree.  What happens?  The lenses in your eyes focus light photons onto the retinas.  The photosensitive cells in your retinas respond by sending neural impulses to your brain.  Your brain processes these signals and forms an image of the tree inside your mind.

So at this point, we’ve only addressed the mechanisms by which you perceive the tree.  We have not addressed understanding what a tree is or considered changes over time.   We are dealing with visual information only.  There is nothing within this information that tells you what a tree actually is.

What makes the image of a tree in your minds click as an actual tree that exists right there in front of you?  This is where mental models kick in and you start to think about the tree.  The tree is actually a concept of something that exists in physical reality.  The “tree concept” is a model.  Understanding the concept of a tree requires more information than is available through sensory experience alone.  It’s built on past experiences and knowledge.

A tree is a plant.  It is a living thing that grows and changes appearance over time, often with the seasons.  Trees have root systems.  Trees use leaves for photosynthesis.  Wood comes from trees.  I can state these facts confidently because I have memories and knowledge of trees contained within my mental models.  Mental models contain knowledge and help us create new knowledge.


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Modeling the Economic Crisis

March 8th, 2010 1 comment

I’m often asked by customers that are new to Systems Thinking, “How can this approach add value to conceptualizing and understanding common, everyday issues?”  The issues range from business design to environmental concerns to macroeconomic dynamics.  In response to this question, I can tell you from my personal experience, nothing beats seeing a skilled practitioner use our software tools and the Systems Thinking methodology to make sense out of a complex problem.

With this in mind, we collaborated with our consulting and training partner, Lexidyne LLC, to create a new series of video-based presentations focused on common but often misunderstood problems that can be conceptualized, expanded, and then explored using Systems Thinking.  We recently released the first video in this series — Understanding the Economic Crisis presented by Dr. Mark Paich.

Judging from its title, you might think Understanding the Economic Crisis presents a huge complex model of the macro economy.  To the contrary, dynamic modeling expert, Mark Paich, begins with a very simple model of something we all can relate to — the individual consumer.

Stock and flow map of an individual consumer's balance sheet

Mark expands upon the model and shows how a sudden drop in housing prices affects individual consumption.   As you might expect, when Total Net Worth falls, the individual responds by spending less.  When housing prices fall, home equity loans no longer provide the purchasing power for big ticket items like cars, vacation homes and big screen TVs.

The real surprise however, comes when Mark further expands the individual consumer model to include the economy as a whole.  When everyone’s net worth decreases at the same time a phenomena known as the “Paradox of Thrift” occurs. The paradox states that if everyone tries to save money during times of recession, total savings for the overall economy may fall.  The dynamics generated by adding elements of the macro economy to the model are indeed surprising.

Mark’s easily understood model leads to some real insights concerning the policy implications for an economic recovery.   It also provides a great example of how Systems Thinking can be used to deepen your understanding of a complex issue in order to make better decisions.  If you haven’t seen the video, I highly recommend it.  The following trailer highlights some of the key points in Mark’s presentation and will give you a taste of the full presentation.

(If you cannot see the video below in your RSS reader, please visit the post page)

For more information or to purchase Understanding the Economic crisis, click here.