A statement is true if it corresponds to the facts – that is what the correspondence theory of truth tells us. But if there is interference from the manipulative function, the facts no longer serve as an independent criterion because the statement may be the product of the manipulative function. Economics is in a period of intellectual flux and while some economists will cling to ideas of market efficiency and rationality to their final days, many others are eager to pursue alternative approaches.
George Soros, its leading advocate, believes that the deviations from economic equilibrium are due to positive feedback loops. According to Soros, reflexivity theory challenges equilibrium and the efficient market hypothesis. Thus, for example, an anthropologist living in an isolated village may affect the village and the behaviour of its citizens under study.
- As people have realized how badly traditional economics has failed, interest in reflexivity has grown.
- We can use our understanding of the physical world to create airplanes, but the invention of the airplane did not change the laws of aerodynamics.
- Both claimed scientific status for their theories but Popper rightly argued that their theories could not be falsified by testing.
Earlier observers recognized it, or at least aspects of it, often under a different name. Keynes (1936, Chapter 12) compared financial markets to a beauty contest where the participants had to guess who would be the most popular choice. The sociologist Merton (1949) wrote about self-fulfilling prophecies, unintended consequences, and the bandwagon effect. Popper spoke of the ‘Oedipus effect’ in the Poverty of Historicism (1957, Chapter 5).
Why is reflexivity important in social theory?
- When the price behavior contradicts my expectations I have to re-examine my hypothesis.
- Financial markets provide an excellent laboratory for testing the ideas I have put forward in the previous sections.
- That makes my ideas less clear when I put them into words than they are in my own mind.
- Historically, the concept of reflexivity has evolved over time, influenced by various thinkers and intellectual movements.
- This type of reflexivity encourages individuals and researchers to acknowledge how their actions and understandings are influenced by external forces such as capitalism, patriarchy, or colonialism.
The efficient market hypothesis claims that markets tend toward equilibrium and that deviations occur in a random fashion and can be attributed to exogenous shocks. It is then a testable proposition whether the efficient market hypothesis or my theory of reflexivity is better at explaining and predicting events. In my argument, I have drawn a sharp distinction between the social and natural sciences. But such dichotomies are usually not found in reality; rather we introduce them in our efforts to make some sense out of an otherwise confusing reality.
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The three salient features of Popper’s scheme are the symmetry between prediction and explanation, the asymmetry between verification and falsification, and the central role of testing. We must also remember that not all forms of fallibility create Knightian uncertainty. Some forms are subject to statistical analysis – human errors leading to road accidents for example, or the many biases and errors discovered by behavioral economists. Other aspects of fallibility qualify as Knightian uncertainty – for example, probability analysis is not much help in understanding the misconceptions at the heart of the euro crisis.
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Rules that can usefully guide decisions in near-equilibrium conditions can be misleading in far-from-equilibrium situations. The same argument applies to the mainstream economic theory currently taught in universities. It is an axiomatic system based on deductive logic, not on empirical evidence. While I have drawn much inspiration from Popper, this is an important point where I differ from my mentor. I believe that reflexivity provides a strong challenge to the idea that natural and social science can be unified. I believe that social science can still be a valuable human endeavor, but in order for it to be so, we must recognize its fundamental differences from natural science.
Strictly speaking, both interpretations are pseudo-scientific by Popper’s standards. And that is why some proponents of the efficient market hypothesis still defend it in the face of all the evidence. The distinction I have drawn between natural and social science consists of the presence or absence of thinking participants’ who have a will of their own. That begs the question of what constitutes a ‘thinking participant.’ One might reasonably ask whether a chimpanzee, a dolphin, or a computerized stock-trading program is a thinking participant.
Firstly, it enhances the credibility and accountability of the research. By being transparent about their views and assumptions, researchers can allow the audience to understand their perspective and the potential influence it may have on the research findings. It ensures that researchers are cognizant of their power dynamics with participants and mindful of their responsibility and potential influence. This reflection can help prevent exploitation or harm and promote respect for participants’ rights and dignity. It encourages researchers to question their own assumptions, leading to more thoughtful, nuanced, and critical interpretations of the data.
These discussions can help reflexive researchers identify potential biases, challenge their interpretations, and consider alternative explanations. For instance, a researcher might share their interview transcripts and preliminary analyses with a colleague. The colleague might question the researcher’s interpretations, point out potential biases in the coding process, or suggest additional themes that the researcher might have overlooked.
Reflexivity and the status of the social sciences
That manipulation may change the state of the physical world, but it does not change the laws that govern that world. We can use our understanding of the physical world to create airplanes, but the invention of the airplane did not change the laws of aerodynamics. Let me illustrate the difficulties in analyzing the relationship between thinking and reality with the help of a diagram. Figure 1 describes the roles of the cognitive and manipulative functions, fallibility, and intentionality. To resolve these difficulties, I propose distinguishing between the objective and subjective aspects of reality.
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These conversations can enhance the rigor and credibility of the research by ensuring that the findings are grounded in the data and relevant literature rather than solely being based on the researcher’s personal perspective. This idea of people’s perception of reality becoming self-fulfilling was enhanced in the 1940s by American sociologist Robert King Merton. It was Merton who coined the term self-fulfilling to describe the idea that people adjust their actions according to how they see their circumstances. This circle between how the situation is viewed and its effect is another example of reflexivity.
Structural reflexivity involves reflecting on the broader social, political, and economic structures that shape individual behavior and societal outcomes. This type of reflexivity encourages individuals and researchers to acknowledge how their actions and understandings are influenced by external forces such as capitalism, patriarchy, or colonialism. For instance, a sociologist examining gender relations must account for how patriarchal structures inform societal expectations and personal identities. According to Giddens and others who favor reflexivity as a social theory, changes in society in the post-modern world have led to people changing how they see themselves. Prior to the modern age, people were limited by tradition and culture as well as their circumstances.
Anthony Giddens expanded on this by indicating that in the post-modern world, changes in communication and globalization have led people to redefine their self-concepts and roles within society. Reflexivity can manifest in various contexts, demonstrating that the interaction between individuals and their social environments is both dynamic and continuous. Reflexivity is an economic theory advocated by George Soros, the central idea of which is that feedback loops between investor perceptions and economic fundamentals prevent markets from reaching equilibrium. Reflexivity can lead to significant price deviations from fundamental values through positive feedback loops, citing historical financial crises such as the global financial crisis.
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In a reflexivity theory way, understanding concepts such as gravity and speed can also be subjectively influenced by people’s knowledge and perspectives of the world around them. I have argued that the failure is more profound than generally recognized. It sought to establish universally and timelessly valid laws governing reality.
The creditworthiness of the sovereign borrowers was measured by various debt ratios, such as debt to GDP or debt service to exports. These ratios were considered objective criteria, but in fact they were reflexive. When the recycling of petro-dollars in the 1970s increased the flow of credit to countries like Brazil, their debt ratios improved, which encouraged further inflows and started a bubble.