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Reflexivity and Equilibria

Author

Listed:
  • Francesco GUALA

Abstract

The failure of models based on rational expectations to explain the “boom and bust” of financial markets does not support Soros’ critique of mainstream economics or his call for a theoretical revolution. Contrary to what Soros says, standard rational choice theory has the conceptual resources to analyse reflexivity. The dynamic of feedback loops for example can be described by simple models based on multiple equilibria and informational cascades. The problem is that agents and theorists sometimes lack the information required to identify equilibria and tipping points.

Suggested Citation

  • Francesco GUALA, 2013. "Reflexivity and Equilibria," Departmental Working Papers 2013-16, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    • Handle: RePEc:mil:wpdepa:2013-16
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    File URL: http://wp.demm.unimi.it/files/wp/2013/DEMM-2013_16wp.pdf
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    References listed on IDEAS

    as
    1. Donald MacKenzie, 2006. "An Engine, Not a Camera: How Financial Models Shape Markets," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262134608, December.
    2. George Soros, 2013. "Fallibility, reflexivity, and the human uncertainty principle," Journal of Economic Methodology, Taylor & Francis Journals, vol. 20(4), pages 309-329, December.
    3. Ignacio Palacios-Huerta, 2003. "Professionals Play Minimax," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 70(2), pages 395-415.
    Full references (including those not matched with items on IDEAS)

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    JEL classification:

    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General

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