The faction system could be a social experiment that was run by the government to examine future conflict scenarios. How does conflict arise? Who strikes first? What are the first signs of tension?
And the different factions could be crude representations of ACTUAL countries involved in real imminent conflict outside Chicago. For example:
Erudite represents a technologically advanced country like the U.S.
Abnegation represents a conservative, yet resource rich country, like those in the middle east with lots of oil
Amity represents a country who’s a top producer of agriculture (like India or China)
Dauntless would be a country with a large military presence, but little or no stable direction or leadership (like Russia in WW1)
Candor could be representative of neutral countries (like Belgium or Switzerland)
The people outside this faction system could have set it up so they can observe how their future conflict might play out (The U.S. forms an alliance with another large country to bully resource-rich countries for oil…similar to how Erudite uses Dauntless to attack Abnegation for “hoarding resources”…of course this narrative is full of biases, but you get the point…)