‘Path dependence’, how we are trapped by our choices

4 min. reading
Cannabis, Cloud, Culture, Digital economy, Investment, New Gen, Pets, Private banking / 19 April, 2023
‘Path dependence’, how we are trapped by our choices

Communications

Maximus Decimus Meridius, the main character of the movie Gladiator (2000) certainly got it right when, addressing his troops, he asserted “Brothers, what we do in life… echoes in eternity”. Albeit not referring to innovation or development, his assertion certainly points to the concept of path dependence: the easy direction to take by following the decisions others have taken in the past. Indeed, it’s quite an eye-opener to see how Roman roads constitute practically a blueprint for their current European counterparts. Even more peculiar is to observe those alternatives to constructed routes, and quite often much more functional ones, which are created in natural spaces by walkers’ footprints, commonly known as ‘desire paths’, thereby begging the question as to whether or not we can elude the path of dependence when it comes to investing. Why understanding trends is critical?

What is path dependence

Path dependence refers to a research design that takes into account that “what is happening now depends on the decisions taken in the past”, says Lorenzo Maggiorelli an expert in the field and Associate Professor at Tadeo Lozano University (Colombia). If such analyses are important when studying history, they are equally so when it comes to designing the future. In other words, we need to establish what to do today to ensure what we want to happen in the future (utopia).

The QWERTY keyboard is a prime example. Early on, there were a host of different typewriter designs, with the one placed in front of the ribbon eventually winning out. This layout was directly replicated by the first computers (because it was much easier than having to design a new one). Likewise, when the smartphone came along, it followed the same design. By then we had fallen into what is known as a technological lock-in.

A path dependence that ensnares: the ‘lock-in’

Why studying path dependence is important Heavy dependence path reliance can, innovation wise, lead to lock-in, a situation in which taking the best path becomes too difficult owing to how well trodden our path has become. Path dependence is a phenomenon that also arises in the economy when, without paying heed to current conditions, we trust in past habits, actions and decisions to get a particular outcome. According to Wall Street Mojo specialists, the finance, accountancy and investment educational sources portal, sticking to a traditional path “is not always the ideal strategy because it restricts decision-making and inhibits growth”.

In this sense, carbon emissions provide us with a clear example, with respect to which, according to some researchers, “lock-ins and path dependencies currently reinforce and stabilize unsustainable policies, institutions, infrastructure, and practices,”  when it comes to considering alternatives to sustainable mobility.

Analysing future path dependence enables us to consider innovating, or not, with respect to certain technologies. For instance, all current investment in synthetic fuels will lock humankind into the combustion engine for several more decades. This is known as ‘technological pigeonholing’.

Can path dependence be used to build a better future?

In the 18th century, the metal industry, the steam engine and cheap coal led to a series of awful innovations that paved the way for heavy path dependence and the subsequent fossil fuel lock-in. Attempts to manufacture (much more efficient) electric vehicles early on the 20th century proved fruitless.

The first electric engine was invented as far back as 1740. In hindsight, it would have been preferable to invest in these types of solutions. As things stand, we can choose which systems to develop. These models can help us to invest in those technological options the path dependence of which will lead us to where we want to go.

To paraphrase Maximus: “The innovation of today will impact on our tomorrow”. Accordingly, when making an investment, it is a good idea to bear in mind our individual contribution to the future we are building. In this case, path dependence serves as a tool to analyse the future projection of the technology we have supported with our purchase. Let’s have a look at an example: A person is considering investing a certain amount of money and is deliberating between biofuels and renewable energies. The former entails endorsing the current path dependence on combustion engines, whereas the latter will aid decarbonisation. Particularly for new generations, who will live through some of these milestones, it is worthwhile studying these concepts before making an investment.