Feedback Loops

Everything is connected! From our biology, to the economy, small changes trigger big changes. We explore feedback loops - the hidden forces shaping our world.

Feedback is information returned to a system. A loop is something that repeats itself.

A feedback loop is therefore the circular process where the output of a system becomes the input influencing future behavior.

For example;

Using customer feedback to improve a product or service.
Using metrics(click-through rates, conversion rates) from an ad campaign to re-target and optimize the campaign.

Feedback loops are at the heartbeat of all interconnected systems(economies, societies, religions, social media, human biology) guiding the evolution of a system and shaping future outcomes in both predictable and unpredictable ways.

A feedback loop can be positive or negative.

Positive feedback loops result in a growth or decline. Adding more and more inputs results in even greater outputs.

Negative feedback loops dampen the output thereby stabilizing the system around an equilibrium point. Adding more and more inputs leads to diminishing outputs.

A great example of a feedback loop is homeostasis in humans whereby, if it's hot, you sweat, the wind blows, perspiration occurs and you feel cool. If it is cold, you shiver which generates heat and you feel warmer.

The image demonstrates this phenomenon;

Positive Feedback Loops: (Reinforcing)

Positive feedback loops are self-fulfilling.

A change in the system triggers a response that amplifies/reinforces that same change, pushing the system in a particular direction.

A change in a given direction causes an additional change in the same direction.

The more positive feedback loops work, the more they gain momentum to keep working in the same direction — reinforcing.

A good example of a positive feedback loop is in the pursuit of peak performance where, initial efforts lead to progress, which feels rewarding.

This sense of accomplishment motivates you even more, creating a positive feedback loop where every success breeds even greater success.

Reinforcing feedback loops may be virtuous (+ve) or vicious (-ve) when left unchecked and can drive the system to extremes(infinity or zero respectively).

An example of a vicious positive feedback loop can be seen in social media;

You post something that gets you likes, comments, shares.
Your brain releases ‘dope’.
Now you have the desire to replicate the positive feelings once experienced.
The focus shifts from producing quality content to seeking validation by tailoring content for likes and shares.
Lower-quality content does not attract engagement.
This perpetuates the approval-seeking behavior that negatively impacts real-life relationships and mental health over time leading to a crash.

Understanding is essential to maintain balance within complex systems.

Network Effects.

In the context of markets, network effects are positive feedback loops where the value of a product or service increases as more people use it.

Businesses leverage network effects to drive exponential growth and amplify initial value for their existing customers.

Network effects merit special emphasis because they are perhaps the most important source of randomness in high-stakes winner-take-all contests. One reason for reading a book or seeing a film is to enjoy the experience of discussing it with others. Opportunities for such exchanges are of course more numerous when you read best-selling titles or watch popular films. But of the thousands of entries released in any given year, only a relative handful find their way onto the most widely circulated best-seller lists.

Success and Luck: Good Fortune and the Myth of Meritocracy

Case Study 1: WhatsApp’s Feedback Loop.

WhatsApp is a great example of a positive feedback loop driven by network effects.

Imagine if friends, family members, or colleagues didn’t have WhatsApp.

Right? How inconvenient! You would be begging them to install WhatsApp on their phone so you can send them a photo or voice message.

That is network effects, the more people with WhatsApp on their phones, the better the experience for existing users.

First, WhatsApp solved a major problem in communication. After WhatsApp, people preferred using mobile data to incurring SMS charges.

Virally, friends, family members, and colleagues encouraged you to download the app so they could send you a funny video. “Word of mouth” is a powerful marketing strategy.

With each new user, the platform’s value increased for its existing users.

Users could talk to a larger network of contacts. Group chats allowed for conversations between multiple participants.

The more people joined WhatsApp, the higher the likelihood of connecting with friends and other contacts, further reinforcing its appeal.

The company gathered user feedback and iterated based on it.

End-to-end encryption, voice and video calls, status updates, and WhatsApp communities are a testament to this massive loop driven by network effects.

Case Study 2: Tesla's Feedback Loop:

Tesla is another good example of the power of feedback loops in business.

All Teslas gather volumes of data such as driving conditions, road infrastructure, lane markings, traffic light behavior, and driver interactions with autopilot controls.

This data is processed and patterns start to emerge in areas of improvement.

Updates are implemented and the autopilot system now has an improved ability to navigate complex situations, recognize new objects, and make better decisions while driving.

As the autopilot system gets better, so does the appeal of owning a Tesla.

This not only gets people wanting to own a Tesla, but more and more Tesla owners start to use autopilot which allows Tesla to gather even more data(output).

The positive feedback loop is evident; as an increasing number of Teslas utilize autopilot, more data is collected, processed, and refined to enhance this feature.

An improved autopilot software attracts more Tesla owners leading to more data collection - perpetuating a continuous cycle of improvement.

The halo effect is a phenomenon where positive perceptions of a brand or product in one aspect influence our overall judgments about it.

If a company is known for producing a superior product, consumers will perceive any product(no matter how average) as exceptional.

Negative Feedback Loops (Balancing).

A change in a given direction causes a change in the opposite direction.

A negative feedback loop is a control mechanism.

It counteracts the initial system conditions back to equilibrium.

It is a protective mechanism employed in a system to prevent it from destruction.

Examples of negative feedback loops at play;

A thermostat - as room temperatures rise, the AC is triggered to cool it down up to a set point of equilibrium.
Picture a scenario where companies listed in the S&P could manipulate financial statements leading to inflated stock prices. Investors would flock further(positive feedback loop) inflating the prices and eventually the bubble bursts followed by a crash. Government regulations are a form of negative feedback loop aimed at bringing the system to equilibrium by instituting regulations(mandatory financial reporting, insider trading restrictions). In any case, even if market manipulation happens, regulations will dampen the bubble effect thus protecting investors and maintaining market stability.
Picture a gambler, winning triggers a ‘dope’ hit, encouraging further gambling(positive feedback loop). This can lead to financial ruin. Regulations such as age restrictions licensing requirements, and advertising limitations are introduced as negative feedback loops to make it harder for people to fall into a gambling addiction thus promoting responsible gambling practices and minimizing societal harm.

A complex system usually has numerous balancing feedback loops it can bring into play, so it can self-correct under different conditions and impacts. Some of those loops may be inactive much of the time—like the emergency cooling system in a nuclear power plant, or your ability to sweat or shiver to maintain your body temperature—but their presence is critical to the long-term welfare of the system.

Thinking in Systems: A Primer, Donella H. Meadows

Social media platforms at times tend to create negative feedback loops which can be detrimental.

Consider a case where the algorithm personalizes your feed based on your engagement with previous content.

This means you will only see content that confirms your existing beliefs.

Over time you develop a filter bubble where you are only exposed to reinforcing information, which further solidifies existing biases.

Fueled by confirmation bias(a phenomenon where you favor information aligning with your existing views and disregard opposing viewpoints), echo chambers are responsible for creating misinformation and distorting a person’s perspective making it difficult for them to consider opposing viewpoints and discussing complex topics.

Feedback Loops in Wealth Creation.

We live in a power-law distribution world where a significant share is in the hands of a very small group of the population.

The notion of wealth redistribution oftentimes emerges as an intuitive solution to rectify this ‘imbalance’, however, its practicality is far more complex.

Wealth creation is a cyclical process where initial investments generate returns, which are reinvested back amplifying further growth - a positive feedback loop;

Someone starts a business, invests in the stock markets, or creates and sells a product or service to solve a problem.
The investment yields returns. The returns are reinvested back into the business in the form of capital or labor to further grow the business and yield even more.
Jobs are created. This stimulates consumer spending, leading to additional revenue and investment returns.

Positive feedback loops amplify, and so over time, there will be income inequality and social disparities. Negative feedback loops(economic policies and regulation) are employed to bring the system to equilibrium.

Why Wealth Redistribution Won’t Work.

Suppose we have regulations in place involving taking wealth from the wealthy through heavy taxation to fund social welfare programs, education, and healthcare for the less fortunate - a noble endeavor on the surface. Yet, beneath this simplistic notion lies a quagmire of unintended consequences;

First, investors and high-income individuals won’t want to invest there to avoid getting heavily taxed.
Secondly, people will go jobless because people with disposable income are not incentivized to consume. This decreases sales and spending. Layoffs follow thereafter.
Third, seeing as the current location is not economically favorable, wealthy people will relocate(because they can), to jurisdictions with favorable tax environments. This reduces government revenues from tax collection and leads to economic instability.

Takeaway;

Wealth distribution isn’t a simple matter of just redistributing resources - it involves untangling complex feedback loops that have been interwoven over a long period.

Feedback loops in Marketing.

You are not a shitty artist, you just think you’re too good for ads.

Music in the top charts is there because of a viral marketing loop. A catchy tune shared by the right person at the right time can propel an artist to superstardom within a day if not minutes.

What sets the ball rolling? The answer lies in the powerful combination of targeted ads and positive feedback loops.

Ads are the initial spark that sets the ball rolling.

If you are a decent enough upcoming struggling artist chances are you lack access to the huge market that would be willing to listen to and love your music and this huge market doesn’t know you exist in the first place.

Platforms such as YouTube, Facebook, or TikTok have access to this audience and they want money to get your music in front of these eyeballs.

After you pay for ads, these platforms employ sophisticated algorithms to target specific demographics(which you lack access to) and music preferences that will ensure your music reaches a highly relevant audience, which increases the chances it will resonate with its listeners - personalization.

Imagine, your ad playing right after a viewer finishes watching their favorite artist’s music video.

This increases the likelihood of your art capturing attention.

If it resonates with the viewer, they are likely to share it within their social circle of friends, followers, or family members.

TikTok is a prime breeding ground for viral music, users create dance challenges and remixes around viral music which triggers a surge of activity surrounding this music.

The more the challenges surrounding this music, the wider the audience reached.

This creates a 'snowball effect' amplifying the song's reach.

Advertising serves to magnify the initial luck, otherwise, it is the positive feedback loop fueled by listener engagement and social media shares that propel the song to viral fame in a matter of minutes.

In a nutshell;

Content that resonates with audiences is shared on social media, which increases brand awareness and drives more traffic. The positive feedback loop leads to explosive growth for a campaign.
Marketing feedback loops need to run a couple of circles before they start to make sense. For example, you might see an ad multiple times a day for a social media tool but the information only registers when you start seriously creating content.
For your marketing campaign to have the desired outcome, you can make the feedback loop shorter by tracking website traffic, A/B testing, retargeting, interactive content for example, polls, social media interaction, running giveaways, and many more.

Shorter Loops mean you can complete more circles in a shorter period - this allows the overall system to get better. The goal is to minimize the delay between measurement and system improvement.

Why Feedback Loops Matter.

Recognize negative loops and break out of them.

Negative feedback loops are subtle saboteurs. They silently perpetuate cycles of stagnation. Being aware of their existence we have the choice of breaking free.

Predict and manage future change.

In a world full of uncertainty, understanding feedback loops sharpens our decision-making process when it comes to interacting with dynamic systems.

We can anticipate changes and navigate accordingly.

Optimize systems for more efficient and effective processes.

While seeking excellence, feedback loops ensure the efficiency and effectiveness of processes.

With feedback loops, complex systems can streamline their processes maximize potential, and achieve peak performance.

Success often results from positive feedback loops that amplify tiny initial variations into enormous differences in outcomes

Sherwin Rosen

Feedback loops are a powerful mental model that, when adopted brings with it a deeper understanding of how systems evolve, make decisions, and change.

By being aware of the significance of feedback loops, people organizations can navigate complexities with clarity and precision.

Summary.

Feedback is information returned to a system, forming a loop where output influences future behavior.
Feedback loops are everywhere, markets, social media, human biology.
Positive feedback loops drive growth, while negative feedback loops stabilize systems counteracting extreme conditions.
Recognizing and leveraging feedback loops is important for optimizing processes, predicting future changes, and breaking free from detrimental loops.

References.