Reflexivity, path dependence, and disequilibrium dynamics
George Soros's theory of reflectivity focuses on the interactions between expected, actual, and fundamental values of variables. The fundamental values are affected by the historically contingent paths of the other two variables so that the equilibrating process is turbulent, path dependent (nonergodic), and may give rise to extended disequilibrium boom-bust phases. Such patterns are consistent with classical and Keynesian ideas of equilibration, but they invalidate notions such as rational expectations and the efficient market. The purpose of this paper is to lay out Soros's theory and show that it can be formalized in a simple and general manner with testable propositions.
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Volume (Year): 33 (2010)
Issue (Month): 1 (October)
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- Paul Davidson, 1991. "Is Probability Theory Relevant for Uncertainty? A Post Keynesian Perspective," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 129-143, Winter.
- Anwar M. Shaikh, 1998.
"The Stock Market and the Corporate Sector: A Profit-Based Approach,"
- Anwar M. Shaikh, 1995. "The Stock Market and the Corporate Sector: Profit-Based Approach," Economics Working Paper Archive wp_146, Levy Economics Institute.
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