Insight: When things break there is an irreversibility of damage. Fragility arises from path dependence - taking actions to prevent fragility become irrelevant after something is broken - to be preventative they must be done before things break.
Insight: People in business often miss the logical precedence of sustainability (survival) over success (profits).
Insight: Efficiency by itself is meaningless.
Definition: Where past actions influence future actions.
Insight: Beliefs are path dependent if the sequence of ideas is such that the first idea dominates.
Insight: The endowment effect (valuing something more highly because we own it) is the result of path dependence, as we are wedded to our previous decision to acquire the item.
Definition: What we have done before shapes what we do next.
Insight: We gravitate to default options because it is what we are used to.
Insight: The best products don't always win. This can be due to path dependence: historical circumstances can determine which businesses or products are widely adopted.
Example: When gambling, big winners and losers tend to become more risk seeking, as their behaviour is influenced by how the game has played out.
Key Insights & Principles
Decision Making
Past decisions and actions influence the choices and decisions available to us.
Some things are irreversible.
The starting point, base rate, or initial decision can greatly influence the future trajectory.
Learn from history.
Consider the future when making decisions, knowing that decisions can influence future outcomes or choices available.
Take longer to analyse and make decisions that are irreversible.
Mitigate downside risk as much as possible, include reversibility mechanisms where possible.
