Complexity theory researchers have created many different computer simulators in the last decade in an attempt to find simple rules underlying the normally unpredictable behavior of intricate systems, including those made up of cells, people, and corporations.
But most complexity models have shown only mixed results, and some scientists think they are based on wishful thinking. Nevertheless BiosGroup Inc., a firm co-owned by Kauffman a complexity theorist, has done more than 50 projects for Fortune 500 clients. The company uses complexity theory analysis to tackle such tangible problems as how to control crowds at an amusement park or how to decrease the amount of time it takes a manufacturer to get its products into neighborhood stores.
Insurance World is one of the most elaborate computer simulations ever designed by complexity theorists. The model incorporates 100,000 variables representing different aspects of individual companies, including customer loyalty, pricing strategy, and their degree of exposure to such risks as litigation, product liability, changing regulatory policies, and changing demographics.
It calculates the direct impact an external event—a hurricane or a flood—will have on the flow of capital in the industry, as well as its ripple effects as rates fluctuate and individual firms adjust their strategies over time.
The 9/11 attacks made Jones a physicist acutely aware that insurance is intertwined with other complex systems, such as governments and capital markets. The fall of the
The immediate effect of the September attack was to suck capital out of the world insurance market to the tune of about $40 billion. Jones describes that loss as "a large but manageable perturbation"—unless another huge catastrophe occurs. "The industry can absorb another natural disaster as long as it's not as big as Hurricane Andrew," Jones says. "But many small companies would go out of business." There would also be pressure on the federal government to step in as an insurer of last resort. "But the government itself is a complex system in a state of near paralysis. Bureaucrats are not accustomed to responding to sudden changes or making quick decisions. And on top of everything else, with the anthrax scare, we had the spectacle of senators forced out of their offices and trying to conduct business on the sidewalk."
Emotion is a factor Jones has found particularly difficult to quantify. "Now, even accidents become correlated with the threat of terrorism," he says. "Take the crash of American Airlines Flight 587 in
The prognosis for complexity theory is good. "We've shown that we can apply these tools of simulation to very practical business problems," he says. "We've started a new industry."
Kemo D. (a.k.a. no.7)