Reflexivity and Economics

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<P>The form of ¿reflexivity¿ ¿ defined by the dictionary as that which is ¿directed back upon itself¿ ¿ that is most relevant to economic methodology is that where observation of the economy leads to ideas that change behavior, which in turn changes (is directed back upon) the economy itself. As George Soros explains: "if investors believe that markets are efficient then that belief will change the way they invest, and that in turn will change the nature of the markets they are observing ¿ That is the <I>principle of reflexivity</I>". </P><P>Although various versions of reflexivity have long been discussed, in recent years George Soros has been particularly effective in bringing ideas about reflexivity to the attention of the economic and financial communities. In a series of writings he has systematically argued that reflexivity is not only an important aspect of economic life, it is an aspect that is neglected in most mainstream theorizing; and in addition, that the neglect of reflex