Feedback, Circular Causality, and System Dynamics

Chapter 7 is about feedback, circular causality, and system dynamics modeling. Circular causality due to positive or negative feedback is a major cause of complexity. When the causality between variables is not linear but circular, we cannot separate causes and effects, which makes it difficult to predict what will happen in a system. Ignoring feedback can lead to unintended consequences, of which several examples are given. This chapter also provides a broad discussion of causality in the social sciences, which is more difficult than the law-like causality in the natural sciences. System dynamics modeling is an excellent way to analyze the effects of feedback and circular causality. After the thorough discussion of causality, the chapter introduces the basics of system dynamics. As economic applications, the Bass diffusion model based on the SIR model from epidemiology, the beer distribution game, a model of a renewable common-pool resource, and a model of societal collapse are presented.