MENTAL MODEL · M0433

Reflexivity

Learn & MetacognitionHigh supportCognitive Science

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Version 1.0.0 · Updated 2026-07-28

CORE DEFINITION

Proposed by George Soros, reflexivity holds that market participants' cognition shapes reality, and reality in turn shapes cognition, forming a feedback loop. The core idea is that prices do not merely reflect fundamentals but also mold them, pushing markets away from equilibrium and producing booms and crashes. It challenges the efficient market hypothesis.

SCAFFOLDING EFFECT

psychology

Reduce cognitive load

- Watch for feedback loops: track how rising prices change the fundamentals that supposedly justify them. - Question market equilibrium: assume prices can create the reality they only seem to reflect. - Spot boom-bust dynamics: look for self-reinforcing trends that eventually reverse violently.

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Anchor fast decisions

Soros proposed that market participants' biases affect fundamentals, which in turn affect cognition, and cognition and reality reflect each other without an independent equilibrium, undermining the efficient market hypothesis.

MINIMUM ACTION

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Practice this model in one real situation:

In the market, identify the reflexive loop of 'mainstream narrative → influencing prices → changing fundamentals → reinforcing the narrative'
use rather than blindly trust equilibrium
be wary of self-reinforcing bubbles and crashes.

Check to track your progress (stored locally)

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Source support: Explicit

link
en.wikipedia.orghttps://en.wikipedia.org/wiki/ReflexiveZH · Explicit
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