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03 Study Notes / Mental Models

21 Path Dependence

The diameter of a rocket was determined by two horse butts. This is a classic case of path dependence, meaning rockets needed to be transported by train, so the rocket's width depended on the train's width, and the train's width depended on the track's width, which in turn was based on the width of ancient war chariots. Back then, a chariot needed to be pulled by two horses, so the butts of two horses determined the width of the chariot, which is why the butts of horses determined the diameter of rockets. That is path dependence.

To put it even more simply, path dependence can be seen as a chain of cause and effect. That is, every choice along the chain is the effect of the previous choice and at the same time the cause of the next one. There are generally several situations that form or reinforce path dependence.

The first is short-sightedness in development and evolution: people always rush to propose an imperfect solution to address an urgent need, while ignoring its long-term consequences.
The second is the emergence of sunk costs: people find that things are already running this way with no major problems for now, and changing it would be more trouble than making do, so they just leave it as is.
The third is strong network effects: people find that once I do it this way, everyone else follows suit. Everyone is already walking this path, and more convenient and mature tacit cooperation has emerged, so newcomers follow along without understanding why.
The fourth is high switching costs: everyone is already playing this way, but you insist on creating a new way of playing. This often means bearing enormous switching costs, which are generally hard to afford.
The fifth is rigid thinking, which is the most basic and also the most common reason. Being lazy to think: whatever everyone else does, I do too. Anyway, if everyone does it, it must be reasonable; and if it's not reasonable, then everyone suffers the loss together, which means I don't suffer alone. Once you know the causes, you also know the solutions.

The most common solutions are: thinking long-term, daring to let go, being distinctive, pioneering and innovating, and thinking independently.

The key is reshaping one's mindset. Path dependence is not a bad thing—it is merely a neutral way of thinking. It can lead to bad outcomes, but also good ones. Path dependence and disruptive innovation are not contradictory; disruptive innovation targets unreasonable path dependence. Disruptive innovation comes at a cost. When facing low-cost, minor problems, if something unreasonable is discovered, disruption should be encouraged. When facing major problems, if the gains from innovation outweigh the innovation risks plus the cost of path dependence, encourage disruption; otherwise, sticking to the existing path while making small improvements is the best choice.