Reflexivity in Economics

FROM WIKIPEDIA - http://en.wikipedia.org/wiki/Reflexivity_(social_theory)
Reflexivity in Economics

Billionaire investor George Soros has been an active promoter of the relevance of reflexivity to economics first propounding it publicly in his 1987 book. [2]

Reflexivity is discordant with Equilibrium theory, which stipulates that markets move towards equilibrium and that non-equilibrium fluctuations are merely random noise that will soon be corrected. In equilibrium theory, prices in the long run at equilibrium reflect the underlying fundamentals, which are unaffected by prices.

Reflexivity asserts that prices do in fact influence the fundamentals and that these newly-influenced set of fundamentals then proceed to change expectations, thus influencing prices; the process continues in a self-reinforcing pattern. Because the pattern is self-reinforcing, markets tend towards disequilibrium. Sooner or later they reach a point where the sentiment is reversed and negative expectations become self-reinforcing in the downward direction, thereby explaining the familiar pattern of boom and bust cycles