Philosophical Foundations:
Soros’s philosophical framework focuses on the relationship between thinking and reality, a subject extensively studied by philosophers. He developed his philosophy while studying at the London School of Economics in the late 1950s, influenced by Karl Popper’s book, The Open Society and Its Enemies.

Popper’s Influence:
Popper argued that empirical truth cannot be known with absolute certainty and that scientific laws are hypothetical and subject to testing. Ideologies claiming ultimate truth are false and can only be imposed through force, leading to repression. Popper proposed an open society where people are free to hold divergent opinions and live together peacefully under the rule of law.

Personal History:
Soros’s experiences living under Nazi and communist occupation in Hungary made the idea of an open society immensely attractive to him. He questioned the assumptions of economic theory, particularly the contradiction between Popper’s emphasis on imperfect understanding and the theory of perfect competition in economics, which postulated perfect knowledge.

Conclusion:
Soros’s philosophy is deeply rooted in his personal history and inspired by Popper’s ideas on open society and the hypothetical nature of scientific laws. His questioning of economic theory’s assumptions led to the development of his own philosophical framework.

Early Life and the German Occupation:
George Soros’s formative experience was the German occupation of Hungary in 1944, where he faced the threat of deportation and death due to his Jewish identity. His father, a former prisoner of war during the Russian Revolution, prepared the family for this crisis, arranging false identities and helping others survive.

Philosophical Aspirations and Financial Success:
Soros pursued philosophical studies in London, aiming to understand the complexities of the world and harboring ambitions of becoming an important philosopher. Despite financial struggles, he continued his philosophical work alongside various jobs, eventually becoming an arbitrage trader in New York.

The Concept of Reflexivity:
Soros developed the concept of reflexivity, a new perspective on financial markets that gave him an edge as a securities analyst and hedge fund manager. He initially viewed this concept as a major discovery that could fulfill his philosophical aspirations but later abandoned his explorations due to their complexity.

Return to Philosophy and The Alchemy of Finance:
After a successful career in finance, Soros returned to his philosophical pursuits, publishing The Alchemy of Finance in 1987. The book explored the philosophical underpinnings of his approach to financial markets but received mixed reactions, with many dismissing its philosophical arguments.

Acceptance and Personal Value of Philosophical Interests:
Soros eventually came to accept that his conceptual framework, while personally valuable, might not be universally appreciated. He continued his philosophical interests as a personal predilection, recognizing that their significance might not be shared by others.

Philosophical Shifts:
Soros’s conceptual framework guided his business and philanthropic activities, and each book he wrote reinforced his arguments. Despite considering himself a failed philosopher, the 2008 financial crisis changed his perspective. His ability to anticipate and manage the crisis, as well as explain and predict events better than others, led to a reevaluation of his philosophy.

Lecture Series Outline:
Lecture 1: Explanation of fallibility and reflexivity in general terms. Lecture 2: Application of these concepts to financial markets. Lecture 3: Application of these concepts to politics and the concept of open society. Lecture 4: Exploration of the difference between market values and moral values. Lecture 5: Predictions and prescriptions for the current historical moment.

Core Ideas:
Fallibility principle: Thinking participants have partial and distorted views of the world. Reflexivity principle: Distorted views can influence the situation they relate to, leading to inappropriate actions and outcomes.

Significance of the Framework:
Soros’s critics acknowledge the obviousness of his propositions, but their significance has been generally overlooked. The concept of reflexivity, in particular, has been avoided and denied in economic theory. The framework’s importance lies not in its novelty but in the fact that something as fundamental as reflexivity has been ignored.

Economic Theory and Uncertainty:
The pursuit of certainty in human affairs, especially in economics, has led to the neglect of reflexivity. Economic theory’s reliance on the concept of equilibrium contradicts the concept of reflexivity. Uncertainty is a key feature of human affairs, and the framework acknowledges this.

Fallibility and Simplification:
The complexity of the world exceeds our capacity to comprehend it, leading to simplification and reliance on mental constructs.

Brain Structure and Mental Distortions:
Brain processes millions of sensory impulses, condensed and interpreted under time pressure, resulting in mistakes and distortions. The structure of the brain supports Hume’s idea that reason is influenced by emotions, not a disembodied intellect.

Reflexivity and Thinking:
Reflexivity applies to situations with thinking participants serving two functions: Cognitive: Understanding the world to determine views. Manipulative: Changing the situation for advantage.

Interference and Uncertainty:
When both functions operate simultaneously, they interfere, depriving each of an independent variable. This interference leads to slippage between intentions, actions, and outcomes, creating uncertainty.

Knowledge and Truth:
In isolation, the cognitive function can produce knowledge, represented by true statements corresponding to facts. With interference from the manipulative function, facts are no longer an independent criterion for truth, as statements can change facts.

Reflexive Statements:
Reflexive statements’ truth depends on their impact, akin to the liar’s paradox but with real-world consequences.

Feedback Loops and Reflexivity:
Reflexivity often takes the form of feedback loops, where participants’ views influence events, which in turn influence their views. The complexities of reflexive feedback loops, including interconnections between participants’ views, present challenges for analysis.

Objective and Subjective Reality:
To avoid getting lost in categories, a distinction between objective (events) and subjective (thinking) aspects of reality is proposed.

Reflexivity Defined:
Reflexivity encompasses both subjective aspects (participants’ views) and objective aspects (external reality). It involves feedback loops between these aspects, affecting the relationship between perception and reality.

Two Broad Categories of Reflexivity:
Reflexive relationships: Subjective aspects interact, like in marriage. Reflexive events: Objective aspects are involved, like the 2008 financial crash.

Feedback Loops:
Negative feedback: Brings views and reality closer, self-correcting. Positive feedback: Drives views further from reality, self-reinforcing.

Equilibrium vs. Disequilibrium:
In economics, equilibrium is central, but in Soros’s framework, it’s a limiting case. Positive feedback creates dynamic disequilibrium, leading to “far from equilibrium conditions.”

Booms and Busts:
Positive feedback can lead to booms and busts in financial markets. “Fertile fallacies” are interpretations that reinforce their own distortions.

Misconceptions in Human Affairs:
Misinterpretations and misconceptions can be significant in human affairs. The recent financial crisis can be attributed to a mistaken interpretation of market dynamics.

Thinking’s Role:
In natural phenomena, thinking has no causal role, only cognitive. In human affairs, thinking is part of the subject matter and has both cognitive and manipulative functions.

Interference between Functions:
The cognitive and manipulative functions of thinking can interfere with each other. This interference doesn’t occur all the time, but it can significantly impact human affairs.

Reflexivity and Uncertainty:
Human uncertainty principle introduces uncertainty in both the cognitive and manipulative functions due to imperfect understanding and unexpected results. Unlike natural phenomena, human actions are based on imperfect understanding, leading to discrepancies between expectations and outcomes.

Separation of Cognitive and Manipulative Functions:
In natural phenomena, there is a separation between cognitive and manipulative functions, allowing for reliable knowledge and successful manipulation. In human affairs, reflexivity blurs this separation, affecting both views and outcomes.

Additional Sources of Uncertainty:
Reflexivity is not the sole source of uncertainty in human affairs. Other factors like incomplete knowledge of others’ knowledge, conflicting interests, and individual values also contribute to uncertainty. These uncertainties are potentially more extensive than those caused by reflexivity.

Human Uncertainty Principle vs. Subjective Skepticism:
The human uncertainty principle is more specific and stringent than subjective skepticism found in Cartesian philosophy. It provides an objective reason to believe that perceptions and expectations can be wrong.

Implications for Social Sciences:
The human uncertainty principle has far-reaching implications for social sciences. It can be explained using Karl Popper’s theory of scientific method, involving prediction, explanation, and testing based on scientific laws and initial/final conditions.

Predictions and Explanations:
Predictions and explanations are symmetrical and reversible, meaning they share a complementary relationship. Both predictions and explanations involve deducing conclusions from prior knowledge or assumptions.

Verification and Falsification:
According to Popper, scientific laws are hypothetical and can’t be verified, only falsified through testing. A single failed test is enough to disprove a theory, but multiple confirming instances don’t guarantee its validity.

Empirical and Rational Nature of Science:
Science is empirical because it tests theories against real-world observations and data. It’s rational because it employs deductive logic to derive predictions from theories.

Reliance on Testing:
Popper emphasizes the central role of testing in scientific method. Only generalizable observations qualify as scientific, and theories that can’t be tested aren’t considered scientific.

Implications for Scientific Progress:
Popper’s scheme highlights the provisional validity of scientific laws, allowing for continuous re-examination and improvement. Testing enables science to grow, innovate, and refine its understanding of the world.

Challenges in Applying Popper’s Scheme to Human Phenomena:
Popper’s scheme works well for studying natural phenomena, but it faces challenges when applied to human behavior due to the inherent uncertainty in human actions. The symmetry between predictions and explanations breaks down, and the central role of testing may be compromised.

The Importance of Participant’s Thinking:
Whether or not to include the participant’s thinking in the initial and final conditions is a crucial consideration for testing generalizations in social science. Including participant’s thinking makes it challenging to observe the initial and final conditions due to the subjective nature of thoughts and actions. Excluding participant’s thinking leads to non-singular observations, as the same objective conditions can be associated with different views among participants.

Difficulties in Generalizing Social Science Findings:
These challenges hinder the ability of social scientists to produce generalizations that meet the requirements of a proper scientific scheme or match the predictive power of physics laws. Social scientists often face the temptation to emulate natural sciences, leading to attempts to eliminate uncertainties by postulating fixed relationships between participant’s thinking and actual conditions.

Attempts to Eliminate Uncertainties:
Karl Marx’s theory of ideological superstructure being determined by material conditions and Freud’s theory of behavior driven by unconscious drives are examples of attempts to eliminate uncertainties. Economic theory has gone through contortions, including the theory of rational expectations, to maintain the fiction of rational behavior and model itself after Newtonian physics.

Karl Popper and Friedrich Hayek’s Views:
Karl Popper recognized that social sciences cannot produce results comparable to physics and criticized the uncritical application of natural science methods, calling it scientism. Friedrich Hayek opposed the mechanical application of quantitative methods in social sciences, advocating for market fundamentalism and the Chicago School of Economics.

Implications of the Human Uncertainty Principle:
The human uncertainty principle implies that the subject matter of natural and social sciences is fundamentally different, requiring different methods and standards. Economic theory should not be expected to produce universally valid laws for explaining and predicting historical events. Slavishly imitating natural science leads to distortions in understanding human and social phenomena.

The Dichotomy of Natural and Social Sciences:
While a sharp distinction between physics and social sciences is justified, there are intermediate sciences like biology and animal studies. The social sciences encounter an additional difficulty of reflexivity, where social theories can affect the subject matter they refer to.

Reflexivity of Social Theories:
Social theories like Marxism, market fundamentalism, and the theory of reflexivity can influence the social phenomena they study. This reflexivity challenges the traditional scientific method’s pursuit of truth, as social science can be used to actively change the state of affairs.

George Soros proposes a dichotomy between natural and social sciences to protect social science from interference. This distinction ensures that social theories are judged on their merits, not by false analogies to natural science.

Protection of Scientific Method:
Soros emphasizes that this convention is for the protection of scientific method, not to devalue or demote social science. It liberates social science from imitating natural science and prevents it from being judged by inappropriate standards.

New Vistas for Social Science:
By removing the pressure to imitate natural science, the convention opens up new avenues for social science. It allows for the exploration of unique methodologies and approaches that are appropriate for studying social phenomena.