A process is said to be path-dependent if accidental events might have a persistent effect on its course. Path dependence is sometimes referred to as hysteresis, even though the two concepts are different in important ways. It is also called lock-in. Once a path is taken, there are costs of switching to a new path (switching costs), so that one is locked into the original path.

Consider for example the issue of driving on the left or on the right. Technically the two choices are equivalent. The initial choice might therefore have been due to accidental reasons. Once the choice was made, though, it became permanent because of the huge cost involved in modifying it. A similar issue is that of the Rail gauge.

Forecasting the behavior of a path-dependent system might be harder as the system is less likely to converge as random events can disrupt its evolution.

History

Human history is considered by many to be path-dependent in the sense that accidental events such as, for example, the death at an early age of major historical figures like Napoleon or Hitler would probably have led to very different historical outcomes.

Economics

In economics, path dependence refers to the view that any economic process does not progress steadily toward some pre-determined and unique equilibrium. Rather, initial conditions determine the path followed and the final result. If path dependence prevails, it implies that history is relevant to what occurs now and when or if the economy attains equilibrium.

Some examples of path dependence in economics:

• Typewriters standardized on the QWERTY layout to avoid jamming. Computers subsequently adopted the same layout even though jamming was not a concern. The costs of retraining make it expensive to adopt another layout.

• In the 1980s, the U.S. dollar exchange rate rose dramatically, destroying many manufacturing enterprises in the industrial heartland by pricing their products out of the market. After the dollar stabilized, the factories remained closed because it was too expensive to restart them.

• As noted in the discussion of unemployment, persistently high cyclical unemployment can lead to higher structural unemployment.

• If the economy follows adaptive expectations, the current amount of inflation is partly determined by past experience with inflation, since that experience determines expected inflation (a major determinant of actual inflation).

Software

In the computer and software markets, legacy systems indicate path dependence: customers' needs in the present market often include being able to read data, or run programs, from past generations of products. Thus, for instance, a customer may need not merely the best available word processor but rather the best available word processor that can read Microsoft Word files. Such limitations contribute to vendor lock-in, and more subtly, to design compromises even in independently developed products if they attempt to be compatible.

Evolution

Evolution is considered by some to be path-dependent in the sense that random mutations occurring in the past have had long-term effects on current life forms, some of which may no longer be adaptive to current conditions.

External links

• "QWERTY, Lock-in, and Path Dependence" (http://cscs.umich.edu/~crshalizi/notebooks/qwerty.html) (arguing that lock-in leads to market failure)
• Margolis and Liebowitz, "Path Dependence, Lock-In, and History" (http://www.utdallas.edu/~liebowit/palgrave/palpd.html) (a criticism of path dependence theory, however this paper is itself controversial, for instance see [1] (http://www.dvorak-keyboard.com/dvorak2.html))