As Assurance of Learning (AOL2) that studies any market phenomenon, create at least

two Laws of your own similar to the Eleven System Laws for explaining and predicting
market behaviour that is not covered by the Eleven Laws. Explain each new Law and
its potential for explaining and predicting behaviour of the phenomena you have chosen
for investigation. Illustrate the application of each Law by past, current or projected
examples.

Systemic Laws for Systems-Thinking (Formulated)

Law 1: “Confirmation Bias distorts and disrupts System Thinking.”

This law explains what exactly prevents system thinking and how it begins to happen. To
understand the concept, let us bring back the definition of system thinking. System Thinking
is a method to see an event in totality, identify links between sub-events and realize the cause
and effect running in cycle, each affecting the other and further reinforcing the cycle
positively or negatively. Now suppose anybody trying to look at a problem through system
think but has developed a bias towards a desired result will try to ignore some less obvious or
more obvious signs of problems, causes and effects. Slowly to put his bias to confirmation,
that person would get trapped in his own bias and squeeze his own ability to look beyond a
point and hence would not be able to see the event under consideration in totality. Such
person’s analysis will stop at a point of his confirmation causing him not to investigate
further and hence the cyclic concept of system thinking will become a linear thinking.
Let us take a simple example of an interview through which only one candidate has to be
selected. The purpose of the interview is to select the right candidate who can propel the
organization to greater heights. An interview is supposed to be a system thinking approach.
The interviewer is supposed to examine every interviewee on the same parameters and
provide each interviewee equal opportunity. However, some time it happens that a candidate
impresses the interviewer at some mid-point of the interview session. At this point the
interviewer would have already made decision of selecting the candidate and would actively
look for signs to confirm his decision ignoring signs of non-conformity. Further, the rest of
interview process will also become simple eye wash putting the rest of the candidates unfairly
at a disadvantage. It may happen that some candidate is better than the previous candidate but
unfortunately the decision is made. Thus, an inferior choice has been made. Now consider the
selected candidate is now on the other side of the table for an interview, it is likely that he
knows one who can impress is the best candidate irrespective of job requirement. Therefore,
he would again select a candidate purely on confirmation bias. The whole cycle repeats once
again and again and at some point leads to a bigger problem for the organization. Therefore, a
biased decision at one point leads to failure of system thinking.
Coming to the case of Nirav Modi, it can be established how confirmation bias led to
disruption in system thinking on the part of banks. LOU’s were issued from PNB to various
banks in the foreign land. Since huge amount were getting deducted from PNB’s account in
other banks but they were not getting replenished, the partner banks could have easily raised
alarm. However, since PNB is a big brand and had good credibility in the market, none of the
partner banks thought it necessary to raise an alarm. These other banks had two confirmation
bias, first, they solely relied on LOU for confirmation of correct process and second, the
brand image of PNB was a big enough confirmation of everything going right. On the PNB’s
part CBS system was not reflecting any big fraud and hence PNB was confirmed of well
being of the banks account. PNB did not even took care to infer any problem from its
financial statements. A clear indication of failure of system thinking.

Law 2: “Fallacy in system thinking is inevitable but can be reduced through

constructive knowledge creation.”
In chapter 3 problem has been described as a system at unrest. A problem arises when the
uncontrollable variables dominates the controllable variables. Now the uncontrollable
variable can dominate the controllable variables in two ways: first, when the intensity of an
uncontrollable variable such as confirmation bias or egoism or loss of morality, some among
many of internal and external variables, grows big enough to be controlled, the uncontrollable
variable dominates the controllable variable. Second, when the number of uncontrollable
variables goes on increasing, the uncontrollable variable dominates controllable variable.
Since human mind is poorly equipped to deal with huge number of unknown or
uncontrollable variable and their rising intensity, it is likely to falter at some point in system
thinking merely because the uncontrollable variables grow strong enough to be managed or
even known by a system thinker. However, the best part of human mind is that it learns from
its mistakes and fallacies. It corrects its previous mistake by knowing more about the
unknown variable and devising methods to control the uncontrollable variables. Thus, a
constructive knowledge created tends to reduce further fallacy in system thinking. The root of
any such knowledge creation is introspection which ultimately leads to repository of all
knowledge that is spirituality. At this point human can also control the internal non-
controllable variables, leading to further reduction in fallacy in system thinking. However,
system itself is very dynamic and therefore creates new unknown variables with time and the
cycle of fallacy and knowledge creation keeps on happening.
Let us apply this law to the case of Nirav Modi. The banks have evolved over the years. They
have developed robust system through system think. Still Nirav Modi could dodge this robust
system in place. How could he manage to do so? Well the answer lies in the fact that over the
years banking system became hugely complex. Hence the number of unknown variables has
also increased and the links between such variables too became oblivion. One such variable
was issue of LOU trough SWIFT machine without the transaction getting properly
highlighted in CBS system. We may say that Nirav Modi and his partners from the bank
could identify this uncontrolled variable and used it to their benefit. Therefore, therefore we
can say that there was a fallacy in the system think of the bank management. However, once
the whole case came into light the banks have a learning and they fixed the problem, still it
can not be said with 100% probability that there will be no re-occurrence of any such fraud
case. The reason is simple, technology will evolve further as well as the business. Thus more
complexity will be added to the system in terms on new uncontrolled variables and therefore,
there will be chances of slip or fallacy in system think.
Law 3: “A system that has got created will surely come to an end. System thinking can
only control the time of that end.”
This law perhaps can be called as mother of all laws. To say a system that has got created will
surely come to an end generates innumerable questions. However, if we examine closely, we
can say this cycle of creation and termination in itself is a part of big system and therefore all
the system that we talk of is actually a smaller part of a bigger system. To illustrate, we will
take example of a natural creation: human body which itself is a creation of great system
think. Human are born and they die, and their next generation survive. Since, human body is
a creation of system think it does not mean it will last forever if we think systematically to
upkeep it. In-fact at best we can delay the end through system think such as upkeep through
healthy food, healthy lifestyle etc. Now one can argue that one human does not make system
but it’s recurring generation do. Even then the above law is valid. It is a well-known fact that
there have been many species on earth that had existed and ultimately got extinct. Given the
way the earth’s atmosphere is changing now, it is very likely that all races that inhabits earth
now will become extinct. Again, someone may argue that then the whole earth will form a
system and hence new species will come up. Still the above law is valid. Since the source of
all energy on earth, the sun, is getting older, at one point no energy will be left on earth to
support life. We can further this argument to the end of the solar system itself and beyond
which perhaps my system think stops to work.
Still some one can say that system think is about human’s ability to think systematically and
therefore we should focus our argument on a system to which man can put impact on through
his system think. Therefore, let us take an example of manufacturing process in a factory that
runs in a cycle. Now a machine can always fail in that process which will get replaced by
another machine. In longer run the whole process itself will become outdated and will get
replaced by new technology. In even a longer run, the whole business of a firm itself will
collapse due to various reasons and new firms will come up and in an even longer run the
whole business idea will itself come to an end leading to some new business idea and so on.
In all this event, we can surely control the time of end through a system think but no way can
avoid the end. Therefore, the above law holds again.
Let us finally apply this law to the case at hand. This case of Nirav Modi deals with two kind
of system think. One is system think of bank management and the other is system think of
Nirav Modi. It is now evident that the case has come to light putting an end to the continuing
fraud, but could that end had come earlier or later? It can be answered through above stated
law. Let us say that bank management could had done better system think to see a link
between transactions. If that would had been the case, this fraud could have come to light
earlier. However, if Nirav Modi had done even better system on his part, he could have
delayed the revelation of the fraud. However, in any case, at some point in time the fraud
would have surely become so large that it would have become conspicuous all by itself.
Therefore, the above mentioned law holds.