THE THEORY OF REFLEXIVITY: A NEW WAY TO ANALYSE FINANCIAL CRISIS

Abstract

The purpose of this research is to understand the financial crisis, ap-
plying the theory of reflexivity. The theory of reflexivity, which was introduced by
George Soros, proposes a different outlook on financial crisis. According to the the-
ory of reflexivity, prior to financial crisis, financial analytics and brokers could not
react to the changes in the economy without reflecting their own thoughts, because
they are part of the system and they are the participants. Therefore, according to
this concept supply and demand curves cannot freely meet at the point of equilib-
rium, because supply and demand cannot be regarded as separate items. In order to
understand the current crisis, a new theory is needed which can look at it from a dif-
ferent perspective. In this article, the world financial crisis of 2008 is regarded
through the prism of the theory of reflexivity.