Soro's reflexivity theory

Soros’s reflexivity theory suggests that in financial markets, investors’ beliefs and actions influence market realities, creating a feedback loop. When investors have positive expectations about an asset, they buy more, driving prices up, which then reinforces those beliefs. Conversely, negative beliefs can lead to declines. This dynamic means markets are often driven by perceptions that can change rapidly, making them inherently unstable. Unlike traditional economic models that assume markets naturally move toward equilibrium, reflexivity recognizes that investors’ biases and perceptions actively shape market outcomes, leading to potential bubbles or crashes.