Limits to Success. The Iron Law of Verhulst

Summary

In this chapter we develop the point of view that Verhulst is a major initiator of systems thinking. His logistic equation is a system archetype, i.e. a simple system built with few feedback loops. In the Fifth Discipline [19] Peter Senge calls this particular archetype “Limits to Success”. It can also be called the “Iron law of Verhulst”, expressing that trees can never grow to heaven. In a deeper analysis this equation illustrates the shifting loop dominance, one of the basic principles of system dynamics. The basic message is that the combination of some few archetypes, like the logistic growth, can afford valuable insight into many complex systems such as the economy, environment, organisations, etc. This fruitful concept is illustrated by a simple model in behavioural finance describing the equity price evolution, and based on the interplay of three main growth archetypes: “Limits to Success”, “Tragedy of the Commons”, and “Balancing Loop with Delay”.