George Soros & Reflexivity, Part II

Meaningful comments left by mikeybee:

• Soros' theory of reflexivity merely translates to the economic and financial systems certain thoughts which are well-established in medicine and science. [That's why he's so clever. What's the better way to learn than from nature, of which the existence has been the result of time-tested, millennial evolution? The more generic and 'natural' your method is, the more powerful and robust it will be.]
• In science, it is a part of quantum theory that the position and momentum of a photon cannot be simultaneously observed, because the process of observation injects energy into the system, thus changing the system itself, and imparting a different momentum to the photon.
• In physiology, the concept of "homeostasis" states that an organism has a natural tendency to return from a disease state to one of well-being. The homeostatic mechanism, however, relies on a complex set of positive and negative feedback systems, operating simultaneously and within "predetermined" limits. "Disease" is defined as a disruption of the homeostatic mechanism, and disease will cause a new "equilibrium" which is not benign, and may indeed be life-threatening.
• The idea of classical economics, that a free market will tend toward an equilibrium, to the extent that it is true, is a truism; there is always a new equilibrium, but it is unstable and not necessarily benign. And we never know where it is or will be next, which means that the concept of "equilibrium" is both meaningless and untestable. [A free market is never efficient but irrational. “I’d be a bum on the street with a tin cup if the markets were always efficient.” -- Warren Buffett]
• Karl Popper, whose work Soros studied, held that the ability to verify a theory doesn't prove its validity; to have validity, it must be "falsifiable". If it can't be falsified, according to Popper, it isn't a theory of value; if it is falsifiable, it is acceptable to employ it until the day it is falsified; but there mere fact that it has not been falsified yet does not prove that it is true. [Every successful investor/trader has a hero. Warren Buffett's hero is Banjamin Graham, and Soros' could be Karl Popper.]
• Soros' genius is indisputable, but his theory of reflexivity is merely an analogue to thoughts of other and greater men. If anything, it is an indictment of the flawed thinking of classical economists that they ever started from the untestable premise that systems tend toward an equilibrium. [“Bad artists copy; great artists steal.” -- Pablo Picasso. The invariant concept that I often talk about comes from mathematics and theoretical physics.]

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