Agency at the Interface: Distinguishing Teleological from Structural Self-Organization via Internal Coarse-Graining and Downward Causation

Abstract: Agency is widely characterized as the capacity of a system to regulate its internal states toward self-generated goals, yet characterizing the functional basis of this autonomy requires a distinction between the system's own organization and an observer's interpretation. In this paper, we ground this capacity functionally in the generative process of intrinsic dynamics, characterized as a self-referential loop generated by internal coarse-graining and downward causation. This process allows the system to autonomously compress microscopic states into macroscopic variables that subsequently constrain microscopic temporal evolution. By distinguishing the intrinsic dynamics of the system from the external coarse-graining of an observer's interpretation, we define agency through the dynamics of the predictive gap. This gap constitutes the internal divergence between the system's anticipation and its realization, as well as the limited reducibility of the system's generated constraints within the observer's interpretive model. This framework outlines a spectrum of agency that distinguishes biological systems, whose teleological constraints are generated through their own regulatory dynamics, from artificial systems, whose organization is designed to satisfy externally specified objectives. Finally, we extend this interface to the social domain, proposing that these generative divergences underpin participatory sense-making and emergent coordination.