George Soros extends his “theory of reflexivity” from abstraction to application in the realm of investing. His book, The New Paradigm for Financial Markets, offers a timely look at the credit crisis that reached crescendo in 2008. His views fall between prescience and vindication. Nevertheless, he concedes fallibility: “With all my great, deep understanding, I don’t always get the markets right.”

In conversation with Ricardo Caballero, Soros recounts the formative experience of his life -- surviving the German occupation of Hungary -- “a far from equilibrium situation.” He credits his father for recognizing that “the normal rules don’t apply” and falsifying documents permitting the family’s escape from fascism. Soros attributes his intellectual development during college to the philosophy of Karl Popper. This led him eventually to question the economic postulate of “perfect knowledge and perfect competition.”

“You have this rational expectations theory that markets are always right. As a working hypothesis, it’s much better to assume that the markets are always wrong. They reflect the existing state of affairs in a distorted or biased way. ”

http://18.9.60.136/video/633