Reflexivity and the global financial crisis

Engaging with Globality through Cognitive Crowns (Part #5)

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That the issue of reflexivity is more than an academic indulgence is remarkably illustrated by George Soros (The New Paradigm for Financial Markets: the credit crisis of 2008 and what it means, 2008) for whom a Theory of Reflexivity is "indispensable" to an understanding of the financial crisis. He argues that:

People are participants, not just observers, and the knowledge they can acquire is not sufficient to guide them in their actions. They cannot base their decisions on knowledge alone. That is the condition I describe by the word "fallibility". Without fallibility there would be no reflexivity...People's understanding is inherently imperfect because they are part of reality and a part cannot fully comprehend the whole... Logic and mathematics are more precise and objective, but they are of limited use in coping with life. Ideas expressed in ordinary language do not constitute an exact representation of an underlying reality. They compound the complexity of the reality with which people have to cope in the course of their lives.

Soros indicates that in endeavouring to define and explain reflexivity, despite the advances of the cognitive sciences, he encountered enormous difficulties. He points to:

• his efforts to distinguish between thinking and reality, "whereas what I wanted to say was that thinking is part of reality"
• which "left out a two-way connection between the thinking of various participants"
• the consequent need to "distinguish between objective and subjective aspects of reality"
• followed by a need to "distinguish between reflexive processes and reflexive statements" with the latter belonging to "the realm of direct interpersonal relations, and those relations are more likely to be reflexive than the course of events."

Are these to be variously understood as manifestations of dynamics within circlets, perhaps operating in "AC" rather than "DC" mode?

Soros argues for a Human Uncertainty Principle given that :

• in the case of reflexive processes "the indeterminacy is introduced by a lack of correspondence between objective and subjective aspects of a situation".
• a situation may be reflexive "even if the the cognitive and manipulative functions operate sequentially and not simultaneously"
• changes occur "as a result of some misconception or misinterpretation by the participants introducing an element of genuine indeterminacy into the course of events"

He recognizes the crudeness of the distinction between cognition of reality and manipulation of it but suggests that nevertheless this crudeness:

... pinpoints a distortion in the way philosophers and scientists tend to look at the world. Their primary concern is the cognitive function; insofar as the manipulative function interferes with the proper functioning of cognition, they are inclined to ignore it or to deliberately eliminate it from consideration. Economic theory proves the best example...That is how the assumption of perfect knowledge morphed into the theory of rational expectations -- a make-believe world that bears no resemblance to reality. [emphasis added]

Perhaps it is indeed the understanding of George Soros -- as a "strange loop" in his own right -- that is indicative of the nature of crowning experience of strategic relevance.

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