Reflexivity

     Reflexive theory is the the best theory I studied in the recent times and influenced me a lot. I read this first from the books of George soros ( is the man who short sold $10billon and made $1.1 billion profit within 24hrs. in 1992) its petty simple theory but the applications and influences are quite enormous.

   
     In simple terms it says " Reality will effect/change perceptions,in the same way perceptions can also effect/change reality". In this first part is quite simple like if a person is good, every one perceive him as a good person and the second part is quite hard to digest but if you can observe you will know that the perception can change reality too.

   
     If you take India  in 2000 ,on the ground we had nothing to write about infrastructure, living conditions, good government etc but some how the perception started to change towards India (may be Nuclear tests helped) and foreign investment started to flow into India ,which started changing the reality , now we are the worlds second fastest growing economy.Even now if you take in any standard (like growth,infra,living standards etc) china is far superior to India but  the capital flows to India are much better compared china ,more companies are starting /increasing  investments in India and many companies like Google are leaving china,which i think will again change the reality in our favor.

   
     If you take prices of Gold for which there are no fundamentals than the price it self are going up because people are buying it thinking the prices go up and the prices are going up because people are buying. When the trend starts reversing the same reflexivity will work in opposite direction too.
   
     In the same way if you take Windows/iPhone there are more applications because of which more people continue to use them and there are more number of users so more companies will continue to develop applications to that platform.This reflexive process to continue till some new platform emerge.
   
     When I first started investing I started reading finance related books. Reading the books helped me understand the markets better and understanding the markets made my reading much more interesting and enjoyable. In the same way reading philosophical books helped understand the world better and vice versa.It is very useful as if you can appreciate it and setup this kind of feedback loops.

     We can find a lot more examples in financial world which you can access below
http://www.sharpeinvesting.com/2007/08/george-soros-theory-of-reflexivity-mit-speech.html