Skip to content

Making Connections

isee systems blog

Making Connections

  • About
  • More Connections
Search

Modeling the Economic Crisis

Updated: March 11, 2010March 8, 2010Filed under: Systems Thinking809 Comments

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.

Systems Thinking
  • crisis
  • economics
  • housing
  • paradox of thrift
  • video

Post navigation

Previous Post:

Modeling Bass Diffusion with Rivalry

Next Post:

What are “Mental Models”?

About the Author

Joanne Egner

All posts byJoanne EgnerWebsite

Hide

Categories

  • Education (4)
  • isee NetSim (3)
  • isee.NET Framework (1)
  • Modeling Tips (32)
  • News & Announcements (15)
  • STELLA & iThink (14)
  • Stories from the Field (5)
  • Systems Thinking (8)
  • Training (6)

Archives

Browse by keyword

2D array archetypes arrays Barry Richmond Bass diffusion builtins calibration Causal Loop CLD command line conferences crisis data diffusion Education environment export game graphical function h1n1 healthcare housing import iThink/STELLA market dynamics MODSIM modules mortgage netsim optimization Physics policy price releases scholarship software spatial Stella storytelling System Dynamics Society Systems Thinking Version 9.1.2 video webinar workshop

Recent Posts

  • COVID-19: Modeling Distributions of Incubation and Recovery Times April 1, 2020
  • Multiobjective Optimization January 9, 2018
  • Optimizing Model Performance December 22, 2017
  • Calibration in Stella® December 15, 2017
  • Drifting Goals March 9, 2016

RSS System Dynamics Forum

Recent Comments

  • best apps review on About
  • digital software on Modeling the Economic Crisis
  • Mishawaka Indiana on What are “Mental Models”?
  • La Paz Indiana on XMILE – An open standard for system dynamics models
  • Bristol Indiana on Modeling the Economic Crisis

Meta

  • Log in
  • Entries feed
  • Comments feed
  • WordPress.org
Products
Software (v1.3)
  • Stella Architect
  • Stella Professional
  • Stella Designer
  • Stella Simulator
  • iThink
  • Feature Updates
  • Policies
  • Publishing Options
  • License Agreement
Free Software
  • Stella Online
  • isee Player
  • Stella Architect Trial
Solutions
Consulting
  • Systems Innovation Practice
Common Applications
  • Business
  • Education
  • Research
  • Government
  • Energy
  • Health
  • Agriculture
  • Manufacturing
  • Conservation
Quick Links
About
  • isee systems
  • Systems Thinking
  • Barry Richmond Scholarship
Resources
  • Frequently Asked Questions
  • Product Help
  • Examples
  • Request Support
  • Request Quote
  • Systems in Focus
  • Quick Tips
  • Legacy Tutorials
News and Events
Upcoming Workshops
  • Introduction to Dynamic Modeling
  • Whole Systems Partnership
Newsletter
  • The Connector
Recent Webinars
  • Model Mysteries
Recent Training
  • Systems Thinking Practice
Press Release
  • Stella Architect Release

  Phone: (603) 448-4990   Email: info@iseesystems.com

   Monday - Friday: 9:00 am - 5:00 pm EDT | Saturday - Sunday: Closed
Wheelock Office Park | 31 Old Etna Rd, Suite 7N | Lebanon, NH 03766 | US

isee systems inc. holds registered trademark rights over the following: iThink®, STELLA®, Stella®, isee systems® and claims the following trademarks; isee NetSim™, Stella Live™, Causal Lens™ and Stella Online™.

Terms of Use

© 2017. isee systems inc . All rights reserved.