Path Dependence

Learning to Type

Researchers frequently use the example of QWERTY to describe the vicious dynamics of winning and losing in an economy, and to illustrate how the final outcome is more than frequently the undeserved one. The arrangement of the letters on a typewriter is an example of the success of the least deserving method. For our typewriters have the order of the letters on their keyboard arranged in a nonoptimal manner, as a matter of fact in such a nonoptimal manner as to slow down the typing rather than make the job easy, in order to avoid jamming the ribbons as they were designed for less electronic days. Therefore, as we started building better typewriters and computerized word processors, several attempts were made to rationalize the computer keyboard, to no avail. People were trained on a QWERTY keyboard and their habits were too sticky for change. Just like the helical propulsion of an actor into stardom, people patronize what other people like to do. Forcing rational dynamics on the process would be superfluous, nay, impossible. This is called a path dependent outcome, and has thwarted many mathematical attempts at modeling behavior.

It is obvious that the information age, by homogenizing our tastes, is causing the unfairness to be even more acute—those who win capture almost all the customers. The example that strikes many as the most spectacular lucky success is that of the software maker Microsoft and its moody founder Bill Gates. While it is hard to deny that Gates is a man of high personal standards, work ethics, and above-average intelligence, is he the best? Does he deserve it? Clearly not. Most people are equipped with his software (like myself ) because other people are equipped with his software, a purely circular effect (economists call that “network externalities”). Nobody ever claimed that it was the best software product. Most of Gates’ rivals have an obsessive jealousy of his success. They are maddened by the fact that he managed to win so big while many of them are struggling to make their companies survive.

Such ideas go against classical economic models, in which results either come from a precise reason (there is no account for uncertainty) or the good guy wins (the good guy is the one who is more skilled and has some technical superiority). Economists discovered path-dependent effects late in their game, then tried to publish wholesale on the topic that otherwise would be bland and obvious. For instance, Brian Arthur, an economist concerned with nonlinearities at the Santa Fe Institute, wrote that chance events coupled with positive feedback rather than technological superiority will determine economic superiority—not some abstrusely defined edge in a given area of expertise. While early economic models excluded randomness, Arthur explained how “unexpected orders, chance meetings with lawyers, managerial whims . . . would help determine which ones achieved early sales and, over time, which firms dominated.”