Hysteresis

Hysteresis is a system in which output is not dependent on inputs added to it. This is unlike a deterministic system where output at a particular time is dependent on the number of inputs used by it. In hysteresis, the output cannot be predicted without analyzing past inputs. A system that follows hysteresis is path-dependent. Examples of this kind of system exist in physics, biological science and in economics.

A few economic systems exhibit hysteresis. Export performances are one example in economics where hysteresis can be observed. Unemployment rates are another area which is susceptible to hysteresis effect.

Export Performance

It has been observed that to boost a nation’s exports, a major push is required since export performance shows hysteresis effects. Attractive incentives for exporting goods and services may help in this regard. Once export figures rise, much effort may not be required to sustain growth.

Unemployment Rates

Unemployment rates are also subject to a hysteresis effect. It has been observed that a rise in unemployment rates tends to sustain term papers itself for a significant period of time. Some economists claim that unemployment itself is subject to hysteresis. Reasons for persisting unemployment may include demand deficiency and labour market institutions.

Game Theory

Example of hysteresis can also be seen in game theory. In game theory, attributes like quality, honesty and corruption are examples that are subject to hysteresis effect. Results are dependent on initial conditions.

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