Theres an interesting network game developed at MIT that is simple to play. Its called the beer distribution game, with someone playing the brewery, someone the wholesaler, and someone the retailer. Each part works as an independent part of the train, trying to maximize their profit. When customers orders come in the retailer then has to pass on the orders to the wholesaler. The wholesaler orders beer from the brewery, stocks beer, and sells it to the retailer. The brewery adjusts how much beer they make depending on orders from the wholesaler. There is a time lag of 4 weeks between placing the order at the retailer and then receiving the beer.
What is interesting in this game is that if customers buy regularly 4 cases a week at the retailer, and then a couple of weeks shift to a regular 8 cases a week this sends off all sorts of crazy gyrations in backlogs and orders. When the retailer finds they are short 4 cases, they increase their orders, which then increases the wholesalers orders. But because there is a 4 week delay in getting the cases, the retailer will often get frustrated and keep increasing their order.
Tens of thousands of people have played this game, including many business people and what often happens is that the backlog orders can jump to a crazy hundred cases, and the retailer may end of up ordering a hundred cases. And then when it finally comes in it overwhelms the store. Then they cut down their orders down to zero. But by then there is so many old orders that beer continues to stream in.
When people playing are playing the game are asked how many cases they think customers are ordering they think they are ordering wildly fluctuating amounts when there was only a simple increase.
The problem lies in system and network effects, people do not fully understand how information and causes propagate in a system.
As they do people playing the game can change their behavior. Even if they are getting a backlog they don’t have to increase their orders, they just have to be patient and wait for the beers ordered 4 weeks ago to come in. It requires adjusting their behavior to understand the lag.
We can think of this supply chain as a simple neural network. And this neural network I would say is operating at the sensorimotor stage of cognitive development (see previous blog). It responds to stimulus but is not really understanding what it is seeing.
When the players get more adept, they flow of beer in the supply chain more accurately mimics the customers orders. When that happens you could say the network can see, can perceive the customers ordering behavior. This is analogous to the pre-operational stage of cognitive development which can now recognize and categorize objects.
As the players get even more adept they can probably pull off even more interesting things with the supply chain. For instance they could double the amount of cases available than what customers order at any time at the retailers. Or they could manage to always stock 3 more cases than what customers are ordering. This kind of network ability requires even more coordination between the brewery, wholesaler and retailer. This analogous to the operational stage of cognitive development where kids can now do operations on objects, sort them into different categories.
Lets look at the gift circle in this cognitive analogical light. It is a neural network that connects many people in an economic system. The gift circle responds to the needs of the local community.
At the pre-operational level it has a kind of stimulus-response pattern as people share their needs and others help. There isnt an understanding of how all the different needs and gifts connect.
At the next level different patterns of needs are begun to be understood in the community. People see how helping someone babysit may free the mother to then go to a meeting where the mother is playing a key role in creating a community hub, which then plays a key role in activating the local community. People understand the ripple effects of their help and so are able to adjust their time and effort of where to place it to best help the system. When this happens the gift circle moves more into the pre-operational stage of development.