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, even though past circumstances may no longer be relevant.
In economics and the social sciences path dependence can refer to either outcomes at a single moment in time or to long run equilibria of a process. In common usage, the phrase implies either:
- (A) that "history matters"—a broad concept, or
- (B) that predictable amplifications of small differences are a disproportionate cause of later circumstances. And, in the "strong" form, that this historical hang-over is inefficient.
The first usage, (A): "history matters" is trivially true in the explanatory context; everything has causes. And, in these fields, the direct influence of earlier states isn't notable (compare "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.
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