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, governing all agent-directed systems. The Hypothesis is concisely expressed by five mathematical relationships, each covering a specific system aspect, any and all of which can be combined; they relate expected net output value, resources, environment, risk, complexity of a resource-sharing procedure, complexity of a precautionary procedure, and complexity of a monitoring procedure. Although it reduces, to numerical expressions for specific system circumstances, the main virtue of the Hypothesis is that it clarifies basic principles and thus helps designers and operators of systems to reason correctly about systems and avoid serious error. There are two risk parameters: positive and negative risk, and the risk measure can be either conventional standard deviation risk or mean deviation risk. There are three complexity parameters: resource-sharing complexity, precautionary complexity, and monitoring complexity. Both resource-sharing and precautionary complexity are defined as execution times; monitoring complexity is defined as negative entropy. The general veracity of this Hypothesis appears such that it could be considered a Fundamental Law of Systems. The 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.