Lock-In Effects
ALSO CALLED LOCK-IN · GOLDEN HANDCUFFS · SWITCHING BARRIER
WHAT IT IS
A past decision keeps governing what you do now, because switching costs more than the benefit — even though you would choose differently if you were starting today. Nobody is trapped by force. Everyone locked in is making a correct decision from where they stand.
WHY IT MATTERS
It turns a price signal into a wall. Normally, when conditions change, behaviour adjusts. Under lock-in the adjustment simply does not happen, and the market stops clearing. Because the arithmetic is public, you can calculate how long the immobility lasts — it decays on a schedule rather than ending with an event.
THE COMMON MISTAKE
That the locked-in party is worse off. Usually the opposite: a household with a 3% mortgage holds a valuable asset. The cost lands on the system — reduced mobility, frozen inventory, worse job matching — not on the person behaving sensibly.
WHERE IT BREAKS
Lock-in is routinely overstated because it is invisible when it breaks. Firms do switch vendors, households do move, standards do get replaced. We notice the cases that persisted, which is a selection problem. And plenty of what gets called lock-in is ordinary preference.
IN PRACTICE
US mortgages
For every percentage point that market rates exceed a household's existing rate, its probability of selling falls by about 18%. Federal researchers put the cumulative effect at more than 1.7 million lost sales in two years — and, by starving supply, a 7% increase in prices.
Defense software
Systems bought on decade-long cycles constrain what can be fielded for a generation after the technology has moved on.
RESEARCH USING THIS
The Mortgage Lock-In Effect
Tens of millions of households hold pandemic-era mortgage rates they can't take with them. Here's the arithmetic of the golden handcuffs — and what FHFA research says it has cost.
Housing Isn't Broken — It's Frozen
Home prices never crashed — transactions did. Understanding why America's housing market froze, rather than broke, explains almost everything strange about it.
Builders Versus Existing Homes
New construction became the only functioning corner of a frozen housing market. The reason is a financing trick existing sellers can't copy.
Why Treasury Yields Matter More Than You Think
The 10-year Treasury yield is the price the rest of the financial world keys off. Here's how discounting actually works, and why a move from 4% to 4.7% reaches your street.
Software Is Becoming a Weapon
Targeting, electronic warfare, and command-and-control are turning into software problems. Here's why the Pentagon historically bought software badly, and how Palantir and Anduril became the template for what's next.
CONNECTED SYSTEMS
Where lock-in effects connects
The concept above is free and always will be. Membership adds the map: which other mechanisms it interacts with, which companies in the RC 100 it is load-bearing in, what it implies for allocation, and the research paths through it.
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- 6 company dossiers
- Strategic implications
- Curated research paths