A FUNDAMENTAL SYSTEM HYPOTHESIS RELATING RESOURCES, RISK, COMPLEXITY AND EXPECTED OUTPUT IN AGENT-DIRECTED SYSTEMS

Abstract

A working hypothesis is presented and justified, called the Fundamental Systems Hypothesis. It relates expected net output value, complexity, risk and resources, and governs all agent-directed systems. The general veracity of this Hypothesis appears such that it could be considered a Fundamental Law of Systems. The risk measure is either conventional standard deviation risk or mean deviation risk. There are two risk parameters: positive and negative risk. There are two complexity parameters: monitoring or checking complexity, and resource scheduling & utilization complexity. Complexity is defined as a specification length after Gell-Mann. Both complexity parameters measure complexity in the system's environment-coping procedure that monitors an often close-to-random time function representing the unfolding environment. The Hypothesis is expressed as a mathematical relationship that reduces to numerical values for specific system circumstances. The established Markowitz-Sharpe-Lintner relationship between return, capital resources and risk for the subclass of financial systems is inherent in the Hypothesis. The Hypothesis can be subjected to experimental test.