Hysteresis

Hysteresis

Used to characterize a lagging effect. Firms may fail to enter markets that appear attractive, or firms that are once invested in a market may persist in operating at a loss. The effect is characteristic of investments with high entry and exit costs along with high uncertainty.

Hysteresis

In economics, a situation or indicator that persists despite evidence that it should not. For example, the unemployment rate tends to remain high even after GDP growth has resumed, in part because business owners are afraid that growth will turn negative again even if they have no rational reason for believing so. One may think of hysteresis as an economy's collective memory. See also: Lagging indicator.