Path-dependent

Path dependence explains how the set of decisions one faces for any given circumstance is limited by the decisions one has made in the past or by the events that one has experienced, even though past circumstances may no longer be relevant.

In economics and the social sciences, path dependence can refer either to outcomes at a single moment in time, or to long-run equilibria of a process. In common usage, the phrase implies either:

In the first usage, (A), "history matters" is trivially true in many contexts; everything has causes, and sometimes different causes lead to different outcomes. In these contexts, the direct influence of earlier states may not be notable (unlike "path-dependent" options in finance, where the influence of history can be non-standard).

It is the narrow concept (B), that has the most explanatory force, and which is covered in this article.

The videotape format war is an example. Three mechanisms independent of product quality could explain how VHS achieved dominance over Betamax from a negligible early adoption lead:

(An alternative analysis is that VHS was better-adapted to market demands (e.g. having a longer recording time). In this interpretation, path dependence had little to do with VHS's success, which would have occurred even if Betamax had established an early lead.)

Positive feedback mechanisms, like bandwagon and network effects, are at the origin of path dependence. They lead to a reinforcing pattern, in which industries 'tip' towards one or another product design. Uncoordinated standardisation can be observed in many other situations.

Path dependence theory was originally developed by economists to explain technology adoption processes and industry evolution. The theoretical ideas have had a strong influence on evolutionary economics.

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