Half A Lifetime Dept: The first thing that struck me was a Wizard of Oz effect. Pull back the curtain and you find, behind that giant figure with his booming, mysterious voice, a little man pushing buttons and pulling levers. Or rather, thousands of men and a few women . Most of them, far from manifesting Olympian, god-like arrogance, seem even more terrified than the rest of us. Partly, no doubt, this is because they are paid to be nervous, but it is also because they better understand the very dangerous place we are in. And one reason they understand it better is that they know the danger comes also from themselves. For the financial markets are a classic example of what social scientists call a collective-action problem. Thousands of individual traders make decisions that are individually rational, at least in the short term, but collectively irrational, according to Globe And Mail. Realities create expectations, but expectations also create realities, and so on and so, over the past few weeks, I have been talking to traders, strategists and analysts in London’s bond markets. Let me say at once that I am a complete novice and amateur in this field. If you want expertise, read no further; turn instead to the Financial Times. If, however, you will accept me as your ordinary citizen’s emissary to Mount Olympus, read on. An essential feature of financial markets is that those involved are simultaneously spectators and actors. George Soros, who has spent half a lifetime trying to explain this phenomenon to a wider world, said last week in London that “markets don’t reflect the facts very well, partly because they create the facts themselves.” In what Mr. Soros calls “reflexivity,” trends in the real world reinforce a bias in market participants’ minds, which in turn reinforces those trends in “a double feedback, reflexive connection.” As
reported in the news.
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@t mr soros, george soros
24.6.10
