We discuss recent work on bounded rationality and learning in relation to Soros' principle of reflexivity and stress the empirical importance of non-rational, almost self-fulfilling equilibria in positive feedback systems. As an empirical example, we discuss a behavioral asset pricing model with heterogeneous expectations. Bubble and crash dynamics is triggered by shocks to fundamentals and amplified by agents switching endogenously between a mean-reverting fundamental rule and a trend-following rule, based upon their relative performance. We also discuss learning-to-forecast laboratory experiments, showing (...) that in positive feedback systems individuals coordinate expectations on non-rational, almost self-fulfilling equilibria with persistent price fluctuations very different from rational equilibria. Economic policy analysis may benefit enormously by focusing on efficiency and welfare gains in correcting mispricing along almost self-fulfilling equilibria. (shrink)

A scientific community cannot practice its trade without some set of received beliefs. These beliefs form the foundation of the "educational initiation that prepares and licenses the student for professional practice". The nature of the "rigorous and rigid" preparation helps ensure that the received beliefs are firmly fixed in the student's mind. Scientists take great pains to defend the assumption that scientists know what the world is like...To this end, "normal science" will often suppress novelties which undermine its foundations. Research (...) is therefore not about discovering the unknown, but rather "a strenuous and devoted attempt to force nature into the conceptual boxes supplied by professional education". (shrink)

George Soros is a legend in the world of finance. His Quantum Fund has been the best-performing investment fund in history and his foundations have helped reshape the post-Cold War world. Now Soros applies all of his wisdom, expertise and insight to explain what's happening in the collapsing global economy. The Russian economy has collapsed, leading to punishing inflation and economic hardship; scores of Japanese banks are in ruin; the once-booming economies of Thailand, Malaysia and Indonesia have imploded; and even (...) in Europe and America the markets lurch violently, wiping out gains with each passing week. In THE CRISIS OF GLOBAL CAPITALISM Soros dissects the current crisis and economic theory, revealing how theoretical assumptions have combined with human behaviour to lead to today's calamities. He shows how unquestioning faith in market forces blinds us to crucial instabilities, and how those instabilities have chain-reacted to cause the current crisis which has the potential to get much, much worse. Offering brilliant solutions to the global meltdown, this is essential reading for anyone involved with the new economy - that is, all of us. (shrink)

The essays in this volume represent an approach to human knowledge that has had a profound influence on many recent thinkers. Popper breaks with a traditional commonsense theory of knowledge that can be traced back to Aristotle. A realist and fallibilist, he argues closely and in simple language that scientific knowledge, once stated in human language, is no longer part of ourselves but a separate entity that grows through critical selection.

There are two interrelated but distinct programs which go by the name evolutionary epistemology. One attempts to account for the characteristics of cognitive mechanisms in animals and humans by a straightforward extension of the biological theory of evolution to those aspects or traits of animals which are the biological substrates of cognitive activity, e.g., their brains, sensory systems, motor systems, etc. (EEM program). The other program attempts to account for the evaluation of ideas, scientific theories and culture in general by (...) using models and metaphors drawn from evolutionary biology (EET program). The paper begins by distinguishing the two programs and discussing the relationship between them. The next section addresses the metaphorical and analogical relationship between evolutionary epistemology and evolutionary biology. Section IV treats the question of the locus of the epistemological problem in the light of an evolutionary analysis. The key questions here involve the relationship between evolutionary epistemology and traditional epistemology and the legitimacy of evolutionary epistemology as epistemology. Section V examines the underlying ontological presuppositions and implications of evolutionary epistemology. Finally, section VI, which is merely the sketch of a problem, addresses the parallel between evolutionary epistemology and evolutionary ethics. (shrink)

v. 1. The collective use and evolution of concepts.

This book offers a comprehensive overview of the structure, strategy and methods of assessment of orthodox theoretical economics. In Part I Professor Hausman explains how economists theorise, emphasising the essential underlying commitment of economists to a vision of economics as a separate science. In Part II he defends the view that the basic axioms of economics are 'inexact' since they deal only with the 'major' causes; unlike most writers on economic methodology, the author argues that it is the rules that (...) economists espouse rather than their practice that is at fault. Part III links the conception of economics as a separate science to the fact that economic theories offer reasons and justifications for human actions, not just their causes. With its lengthy appendix introducing relevant issues in philosophy of science, this book is a major addition to philosophy of economics and of social science. (shrink)