Dirk Ehnts and Miguel Carrion Alvarez — The Theory of Reflexivity – A Non-Stochastic Randomness Theory for Business Schools Only?

Abstract:

According to George Soros (1987) – the author of “The Alchemy of Finance”, a book on the workings of financial markets -
“has found a place in the reading lists of business schools as distinct from economics departments. (2003, 4)"

The theory of reflexivity, which is at the center of the book, states that interdependence exists between the cognitive and manipulative functions of market participants. While Soros claims that imperfect knowledge rules on financial markets, academic orthodoxy assumes perfect knowledge and hence displays – in the absence of external shocks – financial markets as efficient.

Reviewing the published work of George Soros on both reflexivity and the Great Financial Crisis (GFC) we find that his theory can be interpreted as a rough theoretical edifice not too different from the (Post-)Keynesian perspective. Using the GFC as a background we explore the explanatory power of the theory of reflexivity. In our conclusion we make the argument that economic theories build on non-stochastic randomness should form the basis of a new discipline that should be taught at both business schools and economics departments.

Global Economic Intersection
The Theory of Reflexivity – A Non-Stochastic Randomness Theory for Business Schools Only?
Dirk Ehnts, Berlin School of Economics and Law, and Miguel Carrion Alvarez, Miguel Carrion Alvarez, Senior Risk Analyst, Grupo Santander (Math PhD)

Important. Basically, perfect knowledge that is time-dependent is impossible when feedback influences the future. Open complex systems are non-ergodic. Conventional economists pretend (assume) this is not the case in creating ergodic models as a methodological convenience. Alvarez is an expert in complex systems. This article is not wonkish however.