Path dependency

7 October 2014 0 By Viv McWaters

Always wondered why, even in the face of undeniable evidence of better ways of doing stuff (anything, really) we prefer to stick to our old ways? Of course, there’s many answers to this, but here’s one I’ve just learnt about which helps explain, to me, why case studies rarely help in influencing ¬†how people act; why strategic plans are often deadly boring, predictable and more of the same in the future, just bigger; and why people are wont to put up with something inferior (for example, conference formats) when faced with superior alternatives.

It’s called Path Dependency, where the choices we made in the past influences the choices we make in the future. The cost of conversion exceeds the immediate gains in operating efficiency. With me so far?

Now let me introduce you to my new friend, the ‘Curse’ of Technological Inter-relatedness.

This is how Dr Joost Veenstra, Postdoctoral Researcher in Economic History, at University of Groningen describes it (in the Decision Making in a Complex and Uncertain World on-line course)

“If you switch technology but none of your competitors do, you pay the immediate switching cost and lose all extra value from using the most common technology. And, it’s too costly to coordinate all the users to make the switch collectively. This explains why technological and institutional changes in society are partly influenced by decisions and developments in the past, even if the circumstances of the past may not seem relevant today.”

So path dependence is “caused by the behaviour of doing things the way we know, out of uncertainty about the cost of alternatives” and we become locked-in to an inferior standard.

Entrepreneurs know this stuff, and they know that the cost is not always financial – it might be reputational.

Someone has to take the risk to try new technologies, to take a different path, to reject approaches that don’t work, but are familiar, and replace them with approaches that are yet unfamiliar and unproven, still novel. ¬†Social self-organisation and agent-based modelling proves that we humans are prone to ‘social influence’ – as we interact with each other, our opinions tend to merge; and ‘homophily’ – our tendency to interact more with those who are similar.

So next time you present a case study that people love, and ignore; do a strategic plan that is more of the same despite protestations for innovation; and prefer a traditional conference over Open Space, you’ll know why.