The Locked In Factor

No Not an LIRA

One of the things I have learned about working in the Technology world for over 20 years is that sometimes tunnel vision kicks in for decisions about what technology to use. I found a fascinating article in the Boston Globe by Leon Neyfakh that talks about how the Nuclear Reactor world is now technologically locked-in with a technology that was not the best one for Japan:

Japan’s reactors are “light water” reactors, whose safety depends on an uninterrupted power supply to circulate water quickly around the hot core. A light water system is not the only way to design a nuclear reactor. But because of the way the commercial nuclear power industry developed in its early years, it’s virtually the only type of reactor used in nuclear power plants today. Even though there might be better technologies out there, light water is the one that utility companies know how to build, and that governments have historically been willing to fund.

Economists call this problem “technological lock-in”: The term refers to the process by which one new technology can prevail over another for no good reason other than circumstance and inertia. The best-known example of technological lock-in comes from the 1970s, when VHS and Betamax, two different kinds of videotape, competed in the market until VHS gained a slight lead and then leveraged it to total domination. Whether the VHS format was actually superior to Betamax didn’t matter. After the lock-in, consumers no longer had a choice.

In the financial industry that is how a lot of us end up financially locked in to a specific savings product, like myself with my RESPs in TD Mutual Funds, I ended up financially locked in, because I didn’t really look at other savings vehicles that might have done better.

Feeling financially locked in is an uncomfortable feeling, but if you can change, it isn’t imperative that you jump (the opposite of locked in would be a financial joy rider who simply changes because something seems cool (much like technology junkies need new phones every year)), but you should at least figure out whether you are in the right place financially. All decisions in life should be revisited every once in a while to figure out whether your decision is still valid, and the argument I don’t have time to do that means you have decided your initial decision was valid and you will stick with it (but don’t get to complain about it later).

It is rare that any decision locks you into a single path financially (even with LIRA (Locked in Retirement Accounts) you can change the type of account the LIRA is), so take advantage of the freedom and make sure your decision still works, after all you don’t want to end up with a BetaMax financial solution now do you?

{ 3 comments }

{ 2 comments… add one }

  • Jason March 30, 2011, 11:56 PM

    My father always tells me that nothing is ever set in stone. I tell all my clients this.

    Reply
  • Joe March 30, 2011, 6:41 PM

    It’s easy to back yourself up into a corner. Especially an expensive one.

    Reply

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