Introduction to Systems Thinking for

Policy Making

Yos Sunitiyoso
Bandung Institute of Technology (ITB), Indonesia

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 What is a System?

“A group of interacting, interrelated or

interdependent components that form a
complex and unified whole.”
 What is Public Policy Making?

Public Policy Making Defined:

• When government decides to take
action in response to problems or
issues raised by people or groups as
they operate in our political system
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 Social Phenomenon in Indonesia
Roads in my region Government and
are recurringly What are the parliament are
damaged? bureaucrats doing? busy with their
Any corruption? own agenda, and
forgetting their
people needs

Government,
please don’t
lie to us!

The crime rate in my Where is the

Where did the region is so high, what subsidized
taxpayers’ money should we do? We don’t know what is rice ?
go? wrong with this, the
bridge is still damaged
4 Source: UKP4
 Idealistic Policy Making
Rational Process of Policy Making

Decision makers set clear goals

Gather all necessary relevant information

Devise alternatives to meet goals

Prioritized alternatives based on agreed criteria.

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 “The Problems” of Public Policy
Problems in Reality

Policy Resistance

Need to experiment (try-out) and the cost of experimenting

Need to persuade different stakeholders

Overconfident policymakers

Need to have an endogenous perspective

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 Policy Resistance from the Environment

Policy resistance occurs when policy actions trigger

feedback from the environment that undermines the policy
and at times even exacerbates the original problem.

Example 1: if a policy increases the standard of living in an

urban area, more people will migrate to the area,
consuming resources (e.g., food, houses, businesses),
thereby causing the standard of living to decline and
reversing the effects of the original policy (Forrester,
1971).
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 Policy Resistance from the Environment

Example 2: When police forces are

deployed to control an illegal drug
market, drug supply decreases
leading to higher drug prices, more
profit per sale, and greater
attractiveness of drug dealing. The
number of dealers increases,
undermining the original policy
(Richardson, 1983).
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 Need to experiment (try out) and the
cost of experimenting

A second characteristic of public policy problems is the importance

and cost of experimentation with proposed solutions.

Experimentation is important because the stakes are high, and it is

costly because once implemented, policies are often not reversible.

Experiential learning is fundamental to public policy as well:

policymakers, when dealing with complex problems, will implement
policies, observe behaviors, and adjust policies accordingly.

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 Need to experiment and the cost of
experimenting

• Policy resistance (exp: TMB Bandung)

and long delays between actions and their
consequences make effective experiential
learning extremely difficult.
Problem with
• Systems are not usually reversible and
experimentation: once an ineffective policy is implemented
certain characteristics of the system may
change, possibly leading to even worse
behavior.

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 Need to persuade different stakeholders

Different constituencies, pressure groups and stakeholders in

and outside of government all play important roles in
developing policies and influencing their effectiveness
throughout society.

When the best policies are counterintuitive – as is often the

case in complex systems – policymakers face an added
challenge to generate support from those with diverse and
entrenched interests.

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 Overconfident policymakers

Effective resolution of public policy

problems is also hindered by the
overconfidence of policymakers.

Individuals tend to be overconfident in

their decisions when dealing with
moderate or extremely difficult questions.

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 Overconfident policymakers
The issue of overconfidence is also well
documented in the public policy and political
science literatures.
• According to Hood and Peters (2004), government
administrators often underestimate the limits of their
knowledge and display overconfidence when proposing
reforms.
• In addition, Johnson (2004) argues that states’ positive
illusions and overconfidence regarding their own capabilities
is important to explaining the occurrence of wars.

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 Need to have an endogenous
perspective

A final characteristic of public policy problems is the tendency that

decision makers have to attribute undesirable events to exogenous rather
than endogenous sources.

In the judgment and decision making literature, such a tendency is usually

referred to as “self-serving bias”

An endogenous perspective is necessary for individual and organizational

learning. Individuals who attribute adverse events to exogenous factors,
and believe “the enemy is out there” lack the ability to learn from the
environment and improve their behavior (Senge, 1990)

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 Need to have an endogenous perspective

Example 1: Senge (1990)

gives the example of the
arms race between the
Soviet Union and the United For both, the arms buildup
States during the Cold War. of the other was viewed as
Rather than viewing actions an exogenous threat rather
in the context of the entire than an endogenous
feedback system, each party consequence of its own
instead focused only on the earlier actions. The result
link between the threat of was an expensive and
the other party and its own dangerous escalation.
need to build arms (Threat
from the other  Need to
Build own arms).

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 Modelling approaches for Policy Making

Level of
thinking Pattern • Trends and Corelations

Macro • Focus on aggregate

structures
Structure • Helicopter view

• From factors to
Micro actors
• Heterogeneous and
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Structure autonomous agents
 Pattern/Linier thinking
Traffic jam happens at one time
on a specific street
Which route
should be taken ? Pattern

Macro
Structure
Private cars
+
X1 y1 Traffic jam
We need a public
transportation which
X2 + Micro
Public transport (busways)
has its own road
(Busway)
Structure
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 Pattern/Linier thinking
Traffic jam Past Future Prediction

Tolerance
level Pattern

Time
Macro
Now Structure

How do we anticipate it in
the future? Micro
Structure
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 Macro structure
Past Future
Traffic jam Future that is
Current structure New structure created by the
new structure Pattern

Desired
Target Macro
Time Structure
Now: Alternatives of new structures

Is there any
mechanism to Micro
make people
willing to take Structure
public transports?
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 Understanding structure prevents
unexpected results
+
3 in 1 lane Traffic jam
3 in 1 “jockey” + +

+
+ Pattern
Traffic jam +
Number of cars t
Need for new road
+
+
Road length
New road
Macro
+
+ construction
Structure
Construction Private cars
of new road is +
not an X1 y1 Traffic jam
effective +
policy! X2 Micro
New road construction Structure
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Systems Thinking…

Helps us :

1. To explore interdependencies and looking for

patterns
2. To understand feedback structures that
change systems over time.
3. To understand results of our decisions

Max Barret Webecoist.com

Examples of area System Thinking has proven
its value include:
 Complex problems that involve helping many actors see
the “big picture” and not just their part of it
 Recurring problems or those that have been made worse
by past attempts to fix them
 Issues where an action affects (or is affected by) the
environment surrounding the issue, either the natural
environment or the competitive environment
 Problems whose solutions are not obvious
 Why system dynamics is well suited for
policy design?
The feedback approach and emphasis on endogenous
explanations of behavior

The aggregate approach

The simulation approach

The models are “small” enough

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 Benefit of feed back approach
By emphasizing feedback and an endogenous perspective, system
dynamic models help policymakers understand how policy resistance can
arise.

System dynamics models may challenge common beliefs about how

systems work by revealing feedback loops that can exacerbate the
situation, thereby facilitating learning for even the most overconfident
users.

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 Aggregate approach

The building blocks of system dynamics model structure are stocks

and flows rather than individual agents (factors rather than actors)

System Dynamics models are not intended to tracks each individual in

the population separately, but instead models groups of individuals in
the aggregate.

System dynamics models neglect any more detailed implications that

might arise due to individuals heterogeneity.

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 Benefit of aggregate approach
Neglecting micro intervention; SD models are easier to understand and
usually have similar policy implications.
Aggregation reduces the size of the model, thereby decreasing the cost of
developing and running models and allowing for more experimentation.

Given limitations in individuals’ cognitive capacity, aggregation also allows

users to focus on feedback ahead of agent level detail and therefore develop
a more holistic and endogenous perspective to the problem.

By focusing on stocks and flows, SD models can directly help policymakers

build intuition regarding the dynamics of accumulation & thereby overcome
one potential source of policy error.
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 Benefit of Simulation Model
Simulations provide the opportunity to conduct experiments.
Simulation may help to illustrate why intendedly rational policies
lead to policy resistance.
Simulation models provide learning environments where modelers,
policymakers, and others can design and test policies.

Simulations can help to build consensus surrounding difficult policy

problems. By communicating the counter-intuitive nature of policy
problems to policymakers, simulations can encourage dialogue and
lead to the development of shared interpretations regarding the
source of problem behavior.
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 SD copes with problems of Public Policy

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 SYSTEMS THINKING TOOLS

Causal Loop Diagrams

 Represent dynamic interrelationships

 Provide a visual representation with which to

communicate that understanding

 Capture the mental model : make explicit one's

understanding of a system structure

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 Components of Causal Loop Diagrams
Variables - an element in a situation which may act or be
acted upon
 Vary up or down over time (not an event)
 Nouns or noun phrases (not action words)

Links / Arrows - show the relationship and the direction

of influence between variables

S's and O's - show the way one variable moves or changes in
relation to another
 S or + stands for "same direction”
 O or - stands for "opposite direction”

or B - Balancing feedback loop that seeks equilibrium

or R - Reinforcing feedback loop that amplifies change
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 Types of Causal Loop Diagrams
Reinforcing Loop
Structure Behavior Over Time

Employee
Supportive
Performance Perf. Behavior
Reinforcing Level
+
/positive loop
+
Unsupportive
Supervisor’s
Behavior
Supportive
Behavior Time

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 Types of Causal Loop Diagrams
Balancing Loop

Structure Behavior Over Time

Desired `+
Discrepancy
Inventory
- Actual Inventory

Balancing 100 ++
/negative loop +
Desired Inventory
Actual Inventory 100

Inventory Adjustment 100 - -

+

Time

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The Collapsing Banks

Throughout its history, the United States has suffered periodic rashes of
bank failures. During these episodes, depositors seemed to lose
confidence in a bank and began withdrawing their funds. If word of this
worry got around, more and more depositors lost confidence, and
more and more funds were withdrawn from banks.
Eventually, the volume of these withdrawals threatened the solvency of the
bank, and when bank funds fell too low, the bank failed. Worse yet, the
failure of one bank could trigger a rash of other bank failures.
Over the course of several months, depositors at other banks got nervous
when they heard about the failure of the first bank, whether they had any
reason to worry about their own banks or not. So they withdrew their
funds from their banks, and, if funds got low enough, these banks, too,
lost solvency and failed.
 Building A Causal Loop Diagram
1. Formulate the Problem
 The problem is that many banks were failing over the course of several
months.
2. Tell the Story
 As depositors lost confidence in their banks, they withdrew their funds, and
the banks began failing in a kind of domino effect. As more and more banks
failed, depositors lost even more confidence and withdrew yet more funds.
Then, even more banks failed.
3. Choose Your Key Variables, and Name Them Precisely
 Bank Failures
 Bank Solvency
 Funds withdrawals
 Depositors’ confidence
4. Graph the Key Variables’ Behavior Over Time (BOT)
5. Drawing a causal loop diagram:
 Begin at the Beginning
 Work Backward
 Go Back and Forth
BOT for Case 1

BACK

Bank Solvency

Depositors’ Confidence

Funds Withdrawals

Bank Failures

Two Years
 Begin At The Beginning

 Starts with “Depositors’ confidence” as variable (A), what comes

next? Which variable is directly affected by the loss of confidence?

Depositors’ Confidence (A)

• When depositors’ confidence (A) dropped, withdrawals of funds

(B) increased.

Depositors’ Confidence (A) This sign (-) indicated a change

in A produces a change in B in
the opposite direction.

-
Withdrawals of Funds (B)
 Begin At The Beginning (Cont)
• When withdrawals of funds (B) increased, banks’ solvency (C)
decreased.
Depositors’ Confidence (A) This sign (-) indicated a change
in A produces a change in B in
the opposite direction.

-
Withdrawals of Funds (B)

This sign (-) indicated a change

Bank Solvency (C)
- in B produces a change in C in
the opposite direction.
 Begin At The Beginning (Cont)
• When banks’ solvency declined, bank failures (D) increased.

Depositors’ Confidence (A) This sign (-) indicated a change

in A produces a change in B in
the opposite direction.

-
Bank Failures (D) Withdrawals of Funds (B)
-
This sign (-) indicated a change
Bank Solvency (C)
- in B produces a change in C in
the opposite direction.

This sign (-) indicated a change

in C produces a change in D in
the opposite direction.
 Begin At The Beginning (Cont)
• Finally, check the link between the increase in bank failures (D) and a further
decline in depositors’ confidence.
This sign (-) indicated a change
in D produces a change in A in
the opposite direction.
Depositors’ Confidence (A) This sign (-) indicated a change
in A produces a change in B in
- the opposite direction.

-
Bank Failures (D) Withdrawals of Funds (B)
-
This sign (-) indicated a change
- in B produces a change in C in
Bank Solvency (C)
the opposite direction.
This sign (-) indicated a change
in C produces a change in D in
the opposite direction.
Work Backward
 Start with problem symptom and work backward to assemble the
loop diagram.
 Problem symptom is bank failures (1), of the identified variables,
which one leads most directly to increasing bank failures (1)?

Bank Failures (1)

 Work Backward (Cont.)
• Decreasing solvency (2) is leads most directly to increasing bank
failures.
This sign (-) indicated a change
in 2 produces a change in 1 in
the opposite direction. Bank Failures (1)
-

Bank Solvency (2)

 Work Backward (Cont.)
• Withdrawals of funds (3) then lead directly to decreasing solvency
(2).
This sign (-) indicated a change
in 2 produces a change in 1 in
the opposite direction. Bank Failures (1)
-

Bank Solvency (2)

Withdrawals of Funds (3)

This sign (-) indicated a change

in 3 produces a change in 2 in
the opposite direction.
 Work Backward (Cont.)
• Increasing funds withdrawals (3) resulted from declining
depositors confidence (4).
This sign (-) indicated a change
in 2 produces a change in 1 in
the opposite direction. Bank Failures (1)
-

Bank Solvency (2) Depositors’ Confidence (4)

-
-
Withdrawals of Funds (3)

This sign (-) indicated a change This sign (-) indicated a change
in 3 produces a change in 2 in in 4 produces a change in 3 in
the opposite direction. the opposite direction.
 Work Backward (Cont.)
• Finally, what is the connection, if any, between declining depositors confidence
(4) and the rising number of bank failures (1), the lower depositors’
confidence.
This sign (-) indicated a change
This sign (-) indicated a change
in 2 produces a change in 1 in
Bank Failures (1) in 1 produces a change in 4 in
the opposite direction.
the opposite direction.
-
-
Bank Solvency (2) Depositors’ Confidence (4)

- This sign (-) indicated a change

- in 4 produces a change in 3 in
Withdrawals of Funds (3) the opposite direction.

This sign (-) indicated a change

in 3 produces a change in 2 in
the opposite direction.
Go Back and Forth

1. Useful in diagramming complex stories that have many

variables and loops.
2. It is especially valuable when we don’t have full knowledge of
the system.
 Availability of gasoline and electric cars

47 1 - 47
 Demand for energy and oil price

48 1 - 48
Systems Thinking…
Helps us understand results of our decisions…

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