George Soros: General Theory of Reflexivity
I just found this via My Investing Notebook blog: In this article you get a behind the scenes tour of George Soro’s mind…
Click Here To Read George Soros’: General Theory of Reflexivity
Introduction (Via FT)
In the course of my life, I have developed a conceptual framework which has helped me both to make money as a hedge fund manager and to spend money as a policy oriented philanthropist. But the framework itself is not about money, it is about the relationship between thinking and reality, a subject that has been extensively studied by philosophers from early on.
I started developing my philosophy as a student at the London School of Economics in the late 1950s. I took my final exams one year early and I had a year to fill before I was qualified to receive my degree. I could choose my tutor and I chose Karl Popper, the Viennese-born philosopher whose book The Open Society and Its Enemies had made a profound impression on me.
Excerpts (Via FT)
While I was reading Popper I was also studying economic theory and I was struck by the contradiction between Popper’s emphasis on imperfect understanding and the theory of perfect competition in economics which postulated perfect knowledge. This led me to start questioning the assumptions of economic theory. These were the two major theoretical inspirations of my philosophy. It is also deeply rooted in my personal history.
I published my first book, The Alchemy of Finance, in 1987. In that book I tried to explain the philosophical underpinnings of my approach to financial markets. The book attracted a certain amount of attention. It has been read by most people in the hedge fund industry and it is taught in business schools but the philosophical arguments did not make much of an impression. They were largely dismissed as the conceit of a man who has been successful in business and fancied himself as a philosopher.
Feedback loops can be either negative or positive. Negative feedback brings the participants’ views and the actual situation closer together; positive feedback drives them further apart. In other words, a negative feedback process is self-correcting. It can go on forever and if there are no significant changes in external reality, it may eventually lead to an equilibrium where the participants’ views come to correspond to the actual state of affairs. That is what is supposed to happen in financial markets. So equilibrium, which is the central case in economics, turns out to be an extreme case of negative feedback, a limiting case in my conceptual framework.
Click Here To Read George Soros’: General Theory of Reflexivity
