A FUNDAMENTAL SYSTEMS HYPOTHESIS RELATING RESOURCES, RISK,COMPLEXITY AND EXPECTED OUTPUT VALUE

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 human-agent-directed systems. The general veracity of this Hypothesis appears such that it could be considered a Fundamental Law of Systems. The risk measure can be 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-sharing complexity. Monitoring complexity is defined as a specification length, and measures complexity in the system's environment-coping procedure that monitors a time function representing the unfolding environment. Resource-sharing complexity measures the execution time of a complex resource-sharing procedure. The Hypothesis is expressed as a mathematical relationship that reduces to numerical values for specific system circumstances. It also quantifies real economic losses, and gains, associated with system risk. 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.