Cumulative Advantage and Feedback Loops

Systems thinkers know about feedback loops. We see them all over. We understand how powerful they can be.

Feedback loops take the output from a system and use it to influence the input. Sometimes we take the output and put it back into the system. Sometimes the output is monitored and then the input is adjusted.

Take the example of financial investments. Let’s make it simple for the example. Pretend you have a bonus at work. You get an extra $10,000. What do you do with it?

Most people immediately find ways to spend it. Buy a new boat? Upgrade the family car? Redo the downstairs bathroom? Go on vacation? Pay off credit card debt?

In this situation we spend the money and it is gone. But we could use that 10 grand to create a feedback loop to continue to give us money for years.

If we invest that money in a savings account, we will earn interest. Maybe after a year we only earn pennies. But when we keep those pennies in the account, the next year we earn money on the 10 grand AND the pennies. At the end of the year we have a few more pennies that we earn.

We can keep this account for years. If we leave the account open for long enough, we start to build it up much higher and more valuable than the initial $10,000.

If we are able to find better investments than a savings account, the interest that we earn will grow at an even faster pace. Instead of pennies we can start to earn dollars.

If we understand the principles of leverage, we can even use the 10 grand as a down payment and take out a loan for an even greater amount. Then we can buy a house or invest even more. By using leverage, you increase the risk of losing the money instead of gaining money. But if you gain, you gain big.

While simplified, this represents a reinforcing feedback loop. The output (what you earned at the end of the year) gets put back into the input. Then it goes through the system and grows. If we continue to reinvest the money, it starts to grow larger and larger. It forms a pattern where the money keeps increasing every year. In other words, every year the output is going to be greater.

Then, when we look to improve the system (by changing from a savings account to a more lucrative account) we grow the money faster. By taking on leverage, we risk losing the money but have the potential to gain even more.

The balancing feedback loop is a little different. Think about the furnace and heating systems in your house. When the thermostat senses the house is too cold, it tells the furnace to start heating the house.

As the temperature rises, the thermostat will eventually tell the furnace to stop working. This creates a system where the thermostat and furnace work together to keep the house at a comfortable temperature.

But how does all this relate to cumulative advantage?

Cumulative Advantage is the idea that small advantages can turn into larger and larger advantages over time.

On thwink.org, Cumulative Advantage is explained, “The Principle of Cumulative Advantage lies at the heart of many large social problems. It's the causal mechanism for income inequality growth, corruption growth, centralization of power growth, and hardening of class stratification.”

The article goes on to say, “All social agents, from people to families to corporations to nations, seek to maximize their competitive advantage. If they don't they are gradually weeded out by the law of survival of the fittest. The greatest advantage a social agent can have is a reinforcing feedback loop that increases (cumulates) their competitive advantage.”

In other words, Cumulative Advantage gives the advantage to those who already have the advantage. From there, those who have the advantage continue to thrive. They gap between advantaged and disadvantaged grows larger over time. This is the idea that the rich get richer.

Feedback loops are an important part of systems thinking. They give us insight into circumstances in life. They help us take control of the systems around us. It is like we finally start learning the rules of life, a game we continue to play but often don’t understood.