Epidemics and stock market
If Bill Gates followed a linear process of thought, he would have duly supplied IBM the three or four languages that were the part of original deal, and which MS was capable of doing. That could have been the end of it. But Gates went out of his way to secure the DOS from some other company and license it to IBM, insisting on royalties. There is creative, non-linear decision-making process at work here.Bill Gates may not have known about chaos theory, and indeed there is no need to be familiar with chaos theory to come up with path-breaking new ideas, but a grounding in a formal non-linear framework of thought can enhance a manager’s and an organisation’s capabilities of harnessing change, randomness, and uncertainty. Chaos is the science of (seeming) randomness.
However, far from being random, as common usage implies, chaotic systems follow strict laws (though the theory of chaos is yet in developing stages and is not a full-fledged science).That is why the functioning of such systems is called deterministic chaos. Chaotic systems are those that are influenced by very small changes in their controlling factors, like the weather, economics, organisational and management structures. Such systems are often delicately poised between one state and another and so can easily be pushed in an entirely new direction by even very small forces. For example, it only takes one item of bad news to set stock markets tumbling.
In chaotic systems, the force required to influence their long-term future is exceedingly small. Such sensitivity to initial conditions is increasingly becoming a characteristic of flexible organisations in the post-bureaucratic era. Mathematically speaking, chaos helps us to understand how small uncertainties become large uncertainties, once we have a model for the noise, which can be defined as something that obscures our vision of whatever we are trying to measure.A general awareness of chaos began from mathematics but gradually impacted astronomy and earth sciences, and further spread to physics, chemistry, and life sciences, and ultimately to social sciences (Byrne 1998). Phenomena that supposedly chaotic include simple everyday occurrences, like the falling of a leaf or the flapping of a flag, as well as much more involved processes, like the fluctuations of climate and, as we have seen, the course of life and history itself.
The kinds of systems to which chaos models have been successfully applied range from fluctuations in fish populations to epidemics and stock market.Of late, the theory of chaos has assumed a role of increasing importance in social sciences, notably economics. Economic systems are often, though not always, chaotic. For example, in the context of the movements of the price of gold or international currencies, for a long while people speculated whether markets were deterministic or random.
More likely, they are neither. Their operation can be characterised as “chaotic” — they may be deterministic, but have a very complex pattern of changes that are sensitive to the surrounding conditions.Markets can often remain poised while everyone is waiting to see which way events will go. At some critical moment, buying can suddenly change to selling because of a small displacement of transactions in one or there other direction.
If these movements are extreme, then a rapid downward slide or crash can occur. As organisations become more open and dynamic, and thereby more sensitive and responsive to the market conditions, they too invariably come under the sway of the principles of complexity theory.As the environment of organisations is subject to rapid changes and grows ever more complex, non-mechanistic organisations need to become increasingly flexible and adaptive. In open systems theory, which can be as regarded as a precursor the complexity theory, an open system is dynamic, its members living and exerting agency, and its changes irreversible and self-regulating. Novel changes for an uncertain and unpredictable future emerge spontaneously through the interaction of the organism with its environment.
And yet these changes can, to a certain extent, be modeled using chaos theory because chaos contains, and in a sense, produces order. The traditional use of the word chaos signifies complete disorder, but the modern science of chaos has shown that there is a great deal of orderliness in the patterns of movement of chaotic systems. These patterns can sometimes be used to even enable us to forecast what will happen in such a system. There is order within chaos — and this is the fundamental truth about many systems that function seemingly in a chaotic manner.