Reflexivity
George Soros's ==theory of reflexivity reveals a fascinating paradox in financial markets: sometimes stock prices don't merely reflect business value—they actively create it.== It's like a mirror that doesn't just show your reflection but can actually change your appearance.
When Citicorp's stock traded high in 1991, they could raise capital and thrive. Had it plummeted, they might have failed—not because of business fundamentals, but because the market's perception made it so. A high stock price becomes a lifeline for an undercapitalized company, while a low one can be a death sentence.
This phenomenon extends beyond finance: in any system where humans can observe predictions about themselves, they alter their behavior accordingly. It's why medical researchers developed double-blind experiments—they discovered that both patients and doctors unconsciously responded to expectations rather than treatments. The market's judgment isn't just observing the game; it's actively playing in it.