[From time to time, Sound Economics will feature contributions from across the economics faculty at the University of Puget Sound. In our first Faculty Feature segment, Wade Hands discusses his recent participation in a conference on reflexivity and the work of George Soros. -Andrew]
In October, I attended an interesting workshop in Budapest that may interest readers of Sound Economics. The topic of the workshop was George Soros’s Theory of Reflexivity and Its Relationship to Economic Methodology. Most readers know George Soros as a successful investor and philanthropist and probably do not realize that he has written a number of books on the subject of reflexivity in economics.
Reflexivity has a long history within the literature on the philosophy of social science and it comes in a variety of different forms, but the simplest way to think about it is that in the social sciences, unlike the natural sciences, the way that people think about the world (including the scientific theories they accept) has an impact on their behavior and thus in turn on the social world itself. The question of whether a social theory is true, or even partially true, is more complex than is generally the case in physical science. Public knowledge of a scientific theory could make its predictions true (even though they would be false if it were not known) or false (even though they would be true if not known). There are many different spins on this general idea – including the “self-fulfilling prophesy” argument from the sociologist Robert K. Merton, the “Oedipus effect” of the philosopher Karl R. Popper, arguments about “performativity” in contemporary science studies, and the discussion of “self-fulfilling public predictions” by economists Herbert Simon and Franco Modigliani.
George Soros did his university studies at the London School of Economics and was a student of Karl Popper. He accepted what Popper had to say about natural science but believed that Popper’s ideas needed to be modified when applied to a social science like economics (because of reflexivity). Over the years Soros not only wrote about reflexivity – in particular how the subject has been neglected by economists and the problems created by this neglect – but he also applied the idea of reflexivity in his own investment strategy. Popper always argued that a scientific theory should “stick its neck out” by making bold empirical conjectures and exposing them to potential falsification, and Soros reflexivity-based investing strategy is a shining example of such scientific risk-taking: a strategy that paid off financially as well as epistemically.
Since Soros’s work on reflexivity is not well-known among economists interested in methodological and foundational issues, John Davis and I, as editors of The Journal of Economic Methodology (JEM), decided to publish a symposium on Soros’s theory of reflexivity in which Soros would contribute an original paper and have a number of academic authors comment on the paper as well as on the subject of reflexivity and economic methodology in general. That symposium will appear in the December JEM issue. In the meantime, Soros suggested that a few of the contributors participate in a workshop on reflexivity at Central European University in Budapest (a university he helped found). The workshop allowed some of the symposium contributors to present early versions of their papers and get feedback from other contributors as well as Soros himself. All in all it was a great workshop; information is here and the program is here.
-D. Wade Hands
[Editor’s Note: The link above is to a video of the opening session of the symposium, with words from both George Soros and Professor Hands.]