Path Dependence: How Your Past Changes Your Future

Path dependence is a social sciences concept where past events or decisions constrain later events or decisions. In other words, what you do and decide on in the past determines what you can do and choose in the present. History matters. The future development of any system — you, the economy, government, your relationships — is affected by the path it has traced out in the past. This is why change is complicated. A one-size-fits-all “do X now and get Y results in Z time” does not work, since everybody’s past and therefore present and future is entirely unique.

This is both a social and economical concept. It’s common that a standard that is first-to-market becomes entrenched. Think about the QWERTY layout. Look at the first five letters of your keyboard. The same layout was used in typewriters. In fact, this isn’t the most efficient way to type. The only reason it persists is because of the legacy it has built up. There are countless keyboard layouts that are far more efficient for typing speed and comfort. One instance of this is Dvorak. It takes only 63 percent of finger motion required for QWERTY, making typing more ergonomic. Dvorak also situates more used keys on the right hand side, as opposed to QWERTY where 56 percent of typing strokes are done by the left hand.

But we don’t care about keyboards. We care about the historical inertia: it becomes increasingly difficult to adopt new methods or ideas once the established path is entrenched. The longer a particular path is followed, the greater the investment (time, resources, infrastructure, money) that reinforce it. Thus change becomes expensive or difficult. Once a standard is adopted, alternatives rarely gain traction even if they offer advantages — the keyboard example above being a perfect illustration. Decisions are not made in a vacuum. Its why legacy software systems persist in organizations. Transformation is difficult. The workers are used to it and would require retraining. Even if it would boost the company long-term, the incentive to change isn’t great enough.

Real-world instances of path dependence:

• Technology and Software: many organizations continue to use outdated software systems. The sunk costs and complex integrations built over years are hard to wave goodbye. This path dependency makes it difficult to upgrade systems. It doesn’t matter that newer technologies offer substantial benefits. The old is comfortable. The new is uncertain.

• Urban Infrastructure: city layouts and transportation networks often reflect historical development. A city built around a central downtown will find it challenging to implement modern mass transit. Since it requires a different spatial design that wasn’t foreseen. Thus urban planners are constrained by the architects of the past, sometimes resulting in inefficiencies like congestion or an inability to implement modern transit altogether.

• Business Strategy: a company that has built its reputation on a specific business model can find it difficult to pivot. Changing market conditions don’t make it any easier. Their strategy is outdated. Competitors that are agile and innovative capture market share by offering better or cheaper services and products. Eventually the business dies.

• Social Systems: educational systems, legal frameworks, and bureaucracies often evolve gradually. Their path of growth is decided by past choices and established practices. While this inherently provides stability, it also makes these institutions slow to adapt to new societal needs. Take the slow uptake of artificial intelligence in education and judicial systems as an example.

How you can use path dependence as a mental model: (1) respect the past — when facing a decision, examine the historical context to see how past choices shaped current options, identifying which elements are necessary and should be kept and which are artifacts of outdated history that can be discarded; (2) forget sunk costs — recognize when past investments are limiting your options and weigh it by opportunity cost instead of maintaining the status quo; (3) stretch, don’t tear — when changing a stagnant system, minimize the disruption by moving gradually, such as by putting forth phased transitions if you take over an older business; (4) think in consequences of consequences — take into account the long-term implications of your decisions, knowing that each choice can reinforce a path in the future.