The Effect of Risk Averse Policies on the Dynamics of a Complex Organization

(or Why the economy is in the ....)

A simple dynamic model of agent operation of a complex infrastructure system is presented. This system evolves over a long time scale by a daily increase in consumer demand that increases the "pressure" on the system and an operational/engineering response to failures that involves improving the components or operations proceedures. The system is controlled by adjusting the improvement rate of the components and the replacement time of the components. Two agents operate the system. Their behavior is characterized by their risk-averse and risk-taking attitudes while operating the system, their response to large failures, and the effect of learning time on adapting to new conditions. It is found that a risk-averse operation causes a reduction in the frequency of failures and in the number of failures per unit time. However, counter intuitively, risk aversion brings an increase in the probability of extreme events.