What Is George Soros' Game?

A study of Hegel's Dialectics and Soros' own General Theory of Reflexivity gives some clues as to what the enigmatic billionaire may be up to.

A Little About Soros

For anyone in the financial world, Soros' contribution to the field is undeniable. His legendary short on the Bank of England that brought it to its knees — and netted him over a billion dollars in a day — has been called the trade of the century.

"If investing is entertaining, if you're having fun, you're probably not making any money. Good investing is boring."
George Soros

The Theory of Reflexivity

In 2009, Soros wrote an article in the Financial Times called the General Theory of Reflexivity (requires FT subscription).

The name may seem presumptuous — as Soros himself humorously observed — but there's no denying the results. On closer inspection, the theory comes across as an all encompassing study of human nature that can be applied to anything from Finance to Politics.

Soros' General Theory of Reflexivity is perhaps to the social sciences, what Einstein's Theory of Relativity is to the physical sciences.

Reflexivity Summarized

In the article, Soros summarized his theory as comprising of two parts — Fallibility and Reflexivity.

1. Fallibility

Soros explains the principle of Fallibility as follows:

"In situations that have thinking participants, the participants’ view of the world is always partial and distorted."
George Soros, General Theory of Reflexivity (2009).

This principle of Fallibility is also supported by Buffett's talk on cognitive biases, and is another direct repudiation of the Efficient Market Hypothesis (EMH).

2. Reflexivity

Soros then explains that Reflexivity is the phenomenon where:

"Distorted views can influence the situation to which they relate because false views lead to inappropriate actions."
George Soros, General Theory of Reflexivity (2009).

Creation of Bubbles

Finally, Soros explains that the two phenomenon above — in combination — lead to the creation of complex situations such as market bubbles.

"A positive feedback process is self-reinforcing. It cannot go on forever because eventually the participants’ views would become so far removed from objective reality that the participants would have to recognize them as unrealistic... Usually in far-from-equilibrium situations the divergence between perceptions and reality leads to a climax which sets in motion a positive feedback process in the opposite direction. Such initially self-reinforcing but eventually self-defeating boom-bust processes or bubbles are characteristic of financial markets, but they can also be found in other spheres."
George Soros, General Theory of Reflexivity (2009).

Contradicting EMH

Although the Theory of Reflexivity can be inferred to be a repudiation of the Efficient Market Hypothesis from his article in the Financial Times, Soros had not actually referred to EMH in that article in 2009.

But in a far more detailed 2014 article titled Fallibility, Reflexivity, and the Human Uncertainty Principle, Soros himself specifically describes how the Efficient Market Hypothesis (EMH) is utterly fallacious; and how his own General Theory of Reflexivity directly contradicts it.

"Popper sought to distinguish pseudo-scientific theories like those of Marx and Freud from mainstream economics. As mentioned earlier, Popper did not go far enough: rational choice theory and the efficient market hypothesis are just as pseudo-scientific as Marxist and Freudian theories."
George Soros, Fallibility, Reflexivity, and the Human Uncertainty Principle (2014).
"The opportunity for testing occurs because my interpretation of financial markets directly contradicts the efficient market hypothesis, which has been the prevailing paradigm."
George Soros, Fallibility, Reflexivity, and the Human Uncertainty Principle (2014).
"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. I contend that my theory of reflexivity is superior..."
George Soros, Fallibility, Reflexivity, and the Human Uncertainty Principle (2014).
"Bubbles are not the only form in which reflexivity manifests itself. They are just the most dramatic and the most directly contradictory to the efficient market hypothesis, so they do deserve special attention. But reflexivity can take many other forms."
George Soros, Fallibility, Reflexivity, and the Human Uncertainty Principle (2014).
"This essay has shown that my interpretation of financial markets – based on my theory of reflexivity – is radically different from orthodox economics based on efficient markets and rational expectations. Strictly speaking, both interpretations are pseudo-scientific by Popper’s standards. That is why I called my first book ‘The Alchemy of Finance’. And that is why some proponents of the efficient market hypothesis still defend it in the face of all the evidence."
George Soros, Fallibility, Reflexivity, and the Human Uncertainty Principle (2014).

Hegel's Dialectics

Dialectics usually describe a philosophical argument between two opposing groups. The debates between Socrates and his interlocutors are perhaps the most well-known version.

Hegel’s dialectics are a more generic dialectical method where the opposing sides depend on the subject matter being discussed, and are not necessarily groups of people. In the case of geopolitics, the clash between opposing political sides could be seen as the contradictory process that leads to a linear evolution; from simplistic social views to more sophisticated ones.

Reflexivity In Dialectics

The positive feedback process described in Reflexivity is possibly also the reason the Socratic method is so effective. People are usually closed off to or even defensive about new viewpoints, especially those they may be biased about.

But when encouraged to take their own viewpoints to their logical conclusions, new perspectives become more acceptable.

So What Is His Game?

All of this brings us to the big question — what is Soros' game?

Soros has often mentioned how he was deeply influenced by Karl Popper and his book The Open Society and Its Enemies.

The one possibility that does emerge from Reflexivity and Dialectics, is that Soros is attempting to build such an Open Society by pushing fallacious social ideologies to the point of inflection.

Soros Explains Reflexivity

Comments

Apart from Warren Buffet, I have to admit, George Soros is a financial genius. With that being said, I personally experience the impact of his currency manipulation. My home country's economy collapsed and that lead to several riots, murders, and a regime change. He said if he didn't do it, somebody else will. If a man sees a diamond ring in the middle of a road, is his only option to pocket the jewelry because if he doesn't someone else will?

Sorry to hear that, Will.

Soros is undoubtedly a controversial figure.
This blog post was merely an attempt to reconcile his actions with his stated principles.

Any alternative explanations you may have to explain his actions are welcome.
It's great to have you on Serenity!

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