Recently, I reread Jurassic Park, a 1990 science fiction novel, written by Michael Crichton. Blog readers may recall from the book or film that mathematician and chaos theorist, Ian Malcolm, forecasted the failure of the amusement park that showcased dinosaurs recreated from DNA in fossils and in mosquitoes captured in amber.
Malcolm provides a layman's explanation of chaos theory. In Wikipedia, "Chaos theory is a branch of mathematics which studies the behavior of certain dynamical systems that may be highly sensitive to initial conditions. This sensitivity is popularly referred to as the butterfly effect. As a result of this sensitivity, which manifests itself as an exponential growth of error, the behavior of chaotic systems appears to be random. That is, tiny differences in the starting state of the system can lead to enormous differences in the final state of the system even over fairly small timescales."
Reading Crichton again and thinking about unpredictability has lead me to ponder what chaos theory means for business forecasting. What dynamical business systems do or might behave as a chaotic system? Are production and economic systems inherently chaotic and unpredictable?
My current thinking is that long supply chains are the primary dynamical systems we need to be concerned about for computerized decision support. The current efforts to produce and distribute H1N1 vaccine suggest the unpredictability of multilevel, long time horizon supply chains. Are there other dynamical systems of interest? Perhaps mortgage lending, derivatives, risk related systems??
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