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Causal Loop

Diagram
(sources for pictures taken from textbook not
mentioned to reduce clutter)
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Representing Cause and


Effect

moving beyond informal arguments


a formal structure to represent the
system
the structure that we employ is
called Causal Loop Diagram

<Plant growth>

Pest
dynamics

<Farm based
inputs>

<Soil fertility>

Crop rotation and


diversity

+
Pest and
diseases
+ +

Microbial +
richness

Market

+
Organic
Pesticide
+
Chemical
pesticides

<Field
diversity>

+
Species
richness in pest
and diseases
+

+
Species abundance of
birds and rodents
+

-Species abundance
of P&D
-

+
Field diversity
+
Species richness
in birds and
rodents +

+
Species
richness in
predator insects -

Species abundance of +
predatory insects
<Organic
Pesticide>
<Chemical
pesticides>

+
Physical control
methods

Causal Loop Diagram


DELAY

road
construction +

+
road capacity

Traffic volume
depends on congestion,
closing several
feedback loops that
cause traffic to
traffic volume
+
increase whenever new
+
+
roads are built

pressure to reduce
+congestion -

B1
+

desired travel
time

travel time

B2

+
attractiveness of driving
+

trips per day +


DELAY

B3

B4
+ cars in region +

public transit
fare

public transit
ridership

average trip +
length

population and
economic activity
in the region

adequacy of
public transit

cars per person

Causal Links: Reprsenting


Cauase and Effect
More cars will lead to more pollution

More cars lead to less people traveling by


train
Not concerned with the limiting case (for the
time being)

A positive (+) polarity means that the value of the affected variable increases
as the value of the causal variables increases
A negative (-) polarity means that the value of the affected variable
decreases as the value of the causal variables increases
But there is a catch

As population rises, both number of cars and number of train users rise
A positive (+) polarity means that the value of the affected variable increases
as the value of the causal variables increases, all other thing being constant
A negative (-) polarity means that the value of the affected variable
decreases as the value of the causal variables increases, all other thing being
constant

Causal Links: Practice

Loss of wildlife habitat leads to more


incidents of animals attacking human
The higher the investments, the more the
employment
Lower the govt. employees morale, lower
the development outcomes

Causal Links Subtleties

What are the differences between the following

Represent the following

The lower the number of people participating in politics,


the higher the disinterest in politics
The higher the number of people participating in politics,
the lower the disinterest in politics
The lower the number of people participating in politics,
the lower the interest in politics
Rising expenditure on NREGA will increase government's
budget deficit
Variables have to be measurable quantities. Rising
Expenditure is not a variable

Represent the following

The low unemployment rate is the consequence of


government policy

government policy is not a measurable variable.


Some measurable possibilities are budget deficiet,
corporate tax rate, subsidy percentage

Causal Links
Tree cutting increases the pollution level
Variable name must be a noun or noun phrase:
Tree Cutting vs. Number of Trees

Govt. Electricity policy is responsible for depleting


groundwater level
unambiguous names
government policy / electricity rates for irrigation

Feedback from public will increase govt. employees


morale
praise from the public / feedback from the public

High number of cars are responsible for increased


pollution levels
a measurable quantity should have a clear sense of
direction (increase or decrease)
number of cars / high number of cars, pollution
levels/increased pollution levels

Causal Links
Terse
cars/ number of cars
(Everything should be made as simple as possible, but not
simpler Einstein) terse is not always better

cars/cars per person/ cars per region


water temp./actual water temp./desired water
temp.
chose names whose normal sense of direction is positive
motivation / demotivation
employment / unemployment
Aggregate
average age of a group/ list of individual ages
average/total number of insects: not a separate
variable for each type of insect, unless they have
separate dynamics

Causal Links
Represent the relation between birth rate and
population
does a decrease in birth rate means lower population
No. lower than what it otherwise would have been
difference between stock and flow to be discussed
later

Do you know the real value


value
Desired value
Perceived value (maybe different from real value)
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Practice: Relationship
between more than two
variables
Cause and effect are generally linked by a chain
of variables
Reducing wages result in increasing employment

What is the mechanism


Wage costs decrease and as a result profits will
climb, which will positively affect investments which
will increase employment
If the number of seeds planted in a farm increases
this will reduce the plant heights, because the same
amount of nutrition has to be shared among more
plants
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Chain of Reasoning
If minimum wage rises, pressure to pay lower than
minimum wage will rise, unless the gross income
rises
From Editorial in The Mint on Sept. 16:
A good monsoon will likely provide a boost to
rural demand, though it remains to be seen how the
positive effect on farm incomes from higher output
is balanced by a negative effect from lower farm
+ rural demand
prices
rainfall
farm output
rural income
+

farm prices

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Causation vs. Correlation


Causation is about postulating cause and effect
relation
Correlation is simply an observed phenomenon
if the structure of the system changes, correlation
pattern may change

In the last decade both the income inequality and


the school enrollment increased
At times it is more subtle
Does economic growth lead to lower birth rate, or
is the lower rate attributable to literacy, education
for women, and increasing costs of child rearing
A modeler must be careful about postulating
causation, no matter how strong the correlation
(R2) may be

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Causal Loops
A change in any variable sets up a chain
reaction that eventually results in further
changes in that variable
_

Demand

Price

Price

+
Supply

Loops can be at different


levels of details
A simple abstraction

Making mechanism
explicit

price

price
+

cost of
substitutes

relative
value

demand

Balancing Causal Loops


_

Demand

Price

How does this system evolve

A Different Causal Loops


+

Demand

Price

How does this system evolve

Causal Loops: Balancing


vs. Reinforcing
_

Demand

Price

Balancing/Reinforcing loops have odd/even no. of negative links


Do not rely on counting alone, cross check if the polarity of the loop makes
sense does change in a randomly chosen variable has the claimed effect on
variables (see the next example)

Causal Loop Diagram


DELAY

road
construction +

+
road capacity

Traffic volume
depends on congestion,
closing several
feedback loops that
cause traffic to
traffic volume
+
increase whenever new
+
+
roads are built

pressure to reduce
+congestion -

B1
+

desired travel
time

travel time

B2

+
attractiveness of driving
+

trips per day +


DELAY

B3

B4
+ cars in region +

public transit
fare

public transit
ridership

average trip +
length

population and
economic activity
in the region

adequacy of
public transit

cars per person

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Convert the given text to


a Causal Loop Diagram
Once a firm falls behind in its debt payment, its
credit rating goes down. With lower credit rating,
it has to pay more interest for its loans.
Money spent on public goods such as roads,
school, and power encourages entrepreneurs to
start businesses, which would create sustainable
jobs and raise the states tax revenues. These
taxes would make it possible to invest in more
public goods.

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Loop Construction
Practice
TV watching and social life
Use of pesticides: consider short and long term

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Virtuous vs. Vicious Cycle


Traditional notion of virtuous
cycle can be captured by a
self reinforcing loop
A virtuous cycle can easily
become a vicious cycle

+
Forest
Cover

Rain

Kutch was not always a


desert, it was a green land

Temporary changes in link


polarity changes the
nature of the loop
speculative bubbles are
formed when a demandprice loops become self
reinforcing

Demand

Price

Supply

Art is to break a vicious


cycle or convert it into a
virtuous cycle

Notes
Variable names to be chosen carefully
All links must have polarity
There must be loops in your System Diagram.
Absence of loops generally indicate incomplete
reasoning.
*All loops must be marked Balancing (B/-) or
Reinforcing(R/+)

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Feedback System
Thinking
Problems do not stem
from events and
solutions do not
operate in a vacuum.
Problems and solutions
coexist and are
interdependent
Feedback results in
causal loops.
Seeks solutions that
are sympathetic with
agents and their
motivations

people using pesticide


students disinterest in academics

Dynamics of Farm Wages (Ashok


Gulati in IE)

Rising farm wages have increased the cost of


production in agriculture across the board. No
wonder farmers organisations have been
demanding higher minimum support prices (MSPs)
to cover their increased costs of production.
Farmers often hold the Mahatma Gandhi National
Rural Employment Guarantee Act (MGNREGA)
scheme, responsible for this strong push in farm
wages and the overall scarcity of farm labour. This
scheme, they claim, is hitting them adversely as
rising costs are not fully compensated by either
MSPs or market prices. But rapidly rising farm
wages should also bring cheer to those who are
concerned with reducing poverty in rural areas,
especially because farm labour is generally at the
bottom of the economic pyramid. It should also

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