This study concerns the investment of trust funds held by banks in the United States — funds that currently amount to nearly $60 billion. Our model focuses on the investment of trust funds in common stocks. When making a decision, a trust officer in a bank is confronted with a mass of information. Information abounds on the operation of firms and the market valuation of their stocks, and published reports make predictions about the future state of the general economy and the stock market. When an investor acts in an agency or fiduciary capacity, legal restrictions and the desires of his client must also be considered. These factors, when evaluated and combined into an investment program, ultimately result in a decision to buy specific quantities of particular stocks and bonds. Thus, an investor choosing a portfolio is processing information: he sorts the useful from the irrelevant and applies the parts of the total information flow that are most important.
This process involves decision making under uncertainty. Our model, written as a computer program, simulates the procedures used in choosing investment policies for particular accounts, in evaluating the alternatives presented by the market, and in selecting the required portfolios. The analysis is based on the operations at a medium-sized national bank and the decision maker of our model is the trust investment officer. We require our simulation model to select portfolios using the same information that is available to the trust officer at the time his decisions are made.
Source: Skyttner Lars (2006), General Systems Theory: Problems, Perspectives, Practice, Wspc, 2nd Edition.