QUERY Definition of exogenous

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Jean-Jacques Laublé <jean-jac
Senior Member
Posts: 61
Joined: Fri Mar 29, 2002 3:39 am

QUERY Definition of exogenous

Post by Jean-Jacques Laublé <jean-jac »

Posted by Jean-Jacques Laublé <jean-jacques.lauble@wanadoo.fr>

Hi Bill

You write

<And perhaps my understanding of exogenous is dead wrong. I draw a
<distinction between constants that represent behavior over which
<decision makers have no control and parameters which are dimensions of
<policy or decision making over which they have control.

I have thought during the week end about what is exactly an exogenous
variable.

I found that I had not like you a clear understanding of what it was
exactly.

For instance is a variable that would represent the varying demand over a
year and formulated with the following equation exogenous?
Variable in question = base level + ( amplitude of sine wave in demand
*sin(6.283* Time/period of the sine wave)) where period of the sine wave is
12 months.

This variable represents roughly a seasonal demand with a trough and a peak
in a year. Intuitively it looks exogenous.

But somebody could argue that it depends from parameters and from the time
and even that it can be predicted and that therefore there is nothing really
exogenous in it.

The same person could argue that he would accept to name it exogenous if
there was some noise in it that would make the variable unpredictable. But
one can argue then that if there is some noise, everything in the model is
unpredictable.

Example of the equation with noise in it:
Variable in question = base level + ( (amplitude of sine wave in demand *
random (0.8,1.2)*sin(6.283* Time/period of the sine wave))

So relying on the noise to define the exogenous character of a variable does
not seem to work at least alone.

I have then a definition for an exogenous variable.
A variable that is only time dependant.
Only time dependant means that its variability comes exclusively from the
time plus some parameters and not from the behaviour of the model, and in
particular
from the state of the levels at the beginning of each period of time, like
all current variables.

The time dependency can be formulated with a function, with or without
noise, or with a rough data sequence.

Two types of exogenous data could be considered. One where the manager in
the model can predict the value in the future, and one where he cannot
predict it. This means that no decision can be taken in the model
considering future or even actual values of the variable. Decision could be
taken only considering past values.

One can imagine a model where the variable is formulated without noise and
where one supposes that the manager in the model does not know the future
value.

So the exogenous value can be considered predictable or not, depending on
the knowledge of the manager about the equation of the variable.

If the manager inside the model, knows the formulation of the variable, the
variable will become endogenous otherwise it will become exogenous.

It is necessarily exogenous if there is noise in the equation, and if the
variable is a sequence of values depending of the time (data), it will be
endogenous if the manager knows the future values and otherwise exogenous.

To resume for the people that find my description a bit lengthy.

The definition of an exogenous variable is a variable that is only time
dependant with some parameters, is independent from the behaviour of the
model and whose behaviour in the future is known or not known from the
actors taking decisions in the model.

I believe that if the manager knows the future values of the variable, one
can too eventually consider it as exogenous. Everything is a question of
definition. I
would eventually prefer to name a variable really exogenously intuitively
only if the manager does not know its future values, whatever the way it is
formulated.

In the reality, in my own problems many variables are partly endogenous and
exogenous.
Because they depend from exogenous but known factors, like the first part of
the deterministic equation, and have a noisy part unpredictable, the
difficulty being to reduce that unpredictable part to a minimum while still
formulating it precisely.
Am I right or is there something wrong in my definition?
Regards.
Jean-Jacques Laublé Eurli Allocar
Posted by Jean-Jacques Laublé <jean-jacques.lauble@wanadoo.fr>
posting date Mon, 31 Mar 2008 18:16:36 +0200
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""Douglas Franco"" <dfranco@c
Junior Member
Posts: 8
Joined: Fri Mar 29, 2002 3:39 am

QUERY Definition of exogenous

Post by ""Douglas Franco"" <dfranco@c »

Posted by ""Douglas Franco"" <dfranco@cantv.net>

Sometimes, exogenous inputs determine behavior.
There has been concern about what it means an exogenous variable. A sine
wave is presented as an evidence of the fuzziness of the concept.
Reference modes are exogenous inputs to the modeler; if you can build
the exogenous input using stocks and flows, then it is a reference mode
rather than an exogenous input. Stocks and Flows representation unfold
the root causes of pathology and let the success be. Once the ""exogenous
inputs"" are properly structured, the solution is often trivial, because
the feedbacks are made explicit.

Douglas Franco
Posted by ""Douglas Franco"" <dfranco@cantv.net>
posting date Tue, 1 Apr 2008 10:02:01 -0400
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George Richardson <gpr@albany
Member
Posts: 20
Joined: Fri Mar 29, 2002 3:39 am

QUERY Definition of exogenous

Post by George Richardson <gpr@albany »

Posted by George Richardson <gpr@albany.edu>

Jean wrote:

> I have thought during the week end about what is exactly an exogenous
> variable. I found that I had not like you a clear understanding of
> what it was exactly.


A good first cut at what the concepts ""endogenous"" and ""exogenous"" mean
is a simple and familiar but far-reaching one:

A variable is endogenous (in a model or in someone's perspective on a
complex problem) if it is embedded in one or more feedback loops in the
system and derives its dynamic behavior from the forces generated by
those feedback loops.

A variable is exogenous (again in a model or a thoughtful perspective)
if it derives its behavior from forces not influenced by feedback
effects from the system being considered.

Forrester's capsule description of the structure of systems (see the
Market Growth paper or p. 12 of Urban Dynamics) begins with a ""closed
boundary around the system"" (by which he meant a closed causal
boundary). With that idea he signaled his ""endogenous point of view"" as
the powerful framework for thinking about complex systems. The closed
causal boundary means that causal influences generating dynamics inside
that boundary have to come from variables inside that boundary, that is,
from variables embedded in feedback loops.

There's more to say about endogeneity, including considerations of
agency (power of actors in a system to influence variables). But to a
first approximation we can help a lot of folks by just pointing out the
distinction between thinking about things as externally caused or
internally caused, that is, thinking that problems come from ""fate"" or
they come from feedback dynamics.

Let's be clear about our potential contribution: We are the best in
the world at helping people to see their problems from an endogenous
(feedback) point of view. Furthermore, that endogenous perspective
empowers people by helping them to see the ""system as cause,"" not fate.

..George

George P. Richardson
Chair of public administration and policy
Rockefeller College of Public Affairs and Policy
University at Albany - SUNY, Albany, NY 12222
Posted by George Richardson <gpr@albany.edu>
posting date Wed, 02 Apr 2008 10:46:07 -0400
_______________________________________________
Jean-Jacques Laublé <jean-jac
Senior Member
Posts: 61
Joined: Fri Mar 29, 2002 3:39 am

QUERY Definition of exogenous

Post by Jean-Jacques Laublé <jean-jac »

Posted by Jean-Jacques Laublé <jean-jacques.lauble@wanadoo.fr>

Hi Geroge,

Thanks for the clarification, both simple, intuitive and formal
of an exogenous or endogenous variable.

Jean-Jacques Laublé. Eurli Allocar
Strasbourg France
Posted by Jean-Jacques Laublé <jean-jacques.lauble@wanadoo.fr>
posting date Thu, 3 Apr 2008 12:43:39 +0200
_______________________________________________
""John Morecroft"" <jmorecrof
Junior Member
Posts: 10
Joined: Fri Mar 29, 2002 3:39 am

QUERY Definition of exogenous

Post by ""John Morecroft"" <jmorecrof »

Posted by ""John Morecroft"" <jmorecroft@london.edu>

I enjoyed the exchange of ideas stemming from Jean-Jacques' question
about the definition of exogenous. George (Richardson) provided
succinct definitions of exogenous and endogenous variables and also
referred to Jay Forrester's market growth paper, which prompted me to
the following additional thoughts:

Consider a much-simplified market growth model in which delivery delay
is treated as a constant - an exogenous influence on customer orders.
One is left with a single reinforcing loop (in which delivery delay
controls the loop gain) capable of explaining exponential growth or
decline in sales.

Now suppose that delivery delay is made endogenous (by adding loops for
capacity expansion and the effect of backlog on 'delivery delay
recognised by the customer'). A new concept called 'delivery delay
operating goal' now appears in the capacity expansion policy. Imagine
this internal standard for delivery delay is exogenous. One now has a
more subtle multi-loop model capable of explaining fluctuating growth or
decline in sales.

Finally, consider that delivery delay operating goal is endogenised by
making it a function of the historical 'delivery delay recognised by the
firm' and a new exogenous variable called 'delivery delay management
goal'. One now has Forrester's full multi-loop model capable of
explaining fluctuating growth in sales that transforms, surreptitiously
over time, into stagnation and terminal decline.

The point, as George says, is where (in modelling) to draw the line
""between thinking about things as externally caused or internally
caused, that is, thinking that problems come from 'fate' or they come
from feedback dynamics"". The creative choice of where to draw the model
boundary depends on the dynamic phenomenon you are trying to explain.

I have always found the market growth model to be a tangible source of
inspiration for the philosophy of feedback systems. More information
about the model and its fascinating repertoire of dynamics can be found
in:

Forrester JW 1968. Market growth as influenced by capital investment,
Industrial Management Review 7(1), 5-17.

Morecroft JDW 2007. Chapter 7 of Strategic Modelling and Business
Dynamics, Wiley, Chichester.

Sterman JD 2000. Chapter 15 of Business Dynamics: Systems Thinking and
Modeling for a Complex World, Irwin McGraw-Hill, Boston.

_________________________________

John Morecroft | Senior Fellow
Management Science and Operations
London Business School
Posted by ""John Morecroft"" <jmorecroft@london.edu>
posting date Sun, 20 Apr 2008 13:03:01 +0100
_______________________________________________
Tom Fiddaman <tom@ventanasyst
Member
Posts: 25
Joined: Fri Mar 29, 2002 3:39 am

QUERY Definition of exogenous

Post by Tom Fiddaman <tom@ventanasyst »

Posted by Tom Fiddaman <tom@ventanasystems.com>

A replication of the Market Growth model that John Morecroft cited is in my
model library at
http://metasd.com/models/index.html#Business

Tom
Posted by Tom Fiddaman <tom@ventanasystems.com>
posting date Mon, 21 Apr 2008 15:58:18 -0600
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