Background and Motivation:
The workshop originated from a debate on reflexivity led by George Soros at INET’s annual meeting in Berlin 18 months ago. The debate inspired Professor Wade Hands and Professor John Davis, co-editors of the Journal of Economic Methodology, to create a special issue or symposium on the topic.

Special Issue and Contributors:
13 scholars from around the world have contributed articles to the special issue, which will be published in the spring. Seven of these authors are present at the workshop for presentations and discussions. Two commentators will summarize and synthesize the debate.

George Soros’ Involvement:
George Soros, founder of CEU, will share his ideas on reflexivity, particularly its personal meaning to him. His paper, “Fallibility, Reflexivity, and the Human Uncertainty Principle,” was distributed in advance.

Introduction to Reflexivity by Professor Wade Hands:
Professor Hands will provide a 15-minute lecture to introduce the subject of reflexivity and George Soros’ work. He will place the ideas in a historical and intellectual context.

Professor Hands’ Background:
Professor Hands is a professor of economics at the University of Puget Sound, specializing in economic theory, philosophy of economics, and history of economic thought. He is the author of “Reflection Without Rules” and a past president of the History of Economic Society. He co-edits the Journal of Economic Methodology with Professor John Davis.

Background:
Wade Hands and John Davis, experts in the philosophy of economics, have been involved in the field for many years. Recently, there has been a surge of interest in the philosophy of economics, particularly in reflexivity.

Influences on the Resurgence of Interest in Reflexivity:
The financial crisis sparked interest in reflexivity in macroeconomics and finance. Internal developments in economics, such as experimental, behavioral, and neuroeconomics, have also contributed to the renewed interest.

Motivation for the Symposium:
The symposium aims to take advantage of the renewed interest in reflexivity to re-examine the methodological and philosophical foundations of economics. It also seeks to highlight the work of George Soros on reflexivity, which has not received sufficient academic attention.

Existing Literature on Reflexivity:
There is a tradition of research on reflexivity in economic methodology and the philosophy of social science. Authors have different definitions of reflexivity, leading to a diverse literature.

Three Key Contributions to the Literature:

1. Robert K. Merton’s 1949 paper on self-fulfilling prophecies:
Incorrect social theories can make correct predictions due to public reactions. Raises questions for traditional positivist philosophy of science.

2. Sociology of scientific knowledge literature:
Economists’ actions can manifest in societal institutions. Economists perform and create the economy through their theories.

3. Herb Simon, Franco Modigliani, and others’ work in the 1950s:
Demonstrated the possibility of correct public predictions that are not self-falsifying. This work influenced John Muth, a pioneer of rational expectations theory.

Ironies in the Literature:
Reflexivity, which challenges rational expectations and efficient market hypothesis, originated from a paper attempting to show reflexivity. Robert K. Merton’s son, Robert C. Merton, won a Nobel Prize for the Black-Scholes option pricing model, which is based on rational expectations.

Conclusion:
Reflexivity raises fundamental questions in the philosophy of social science. The symposium aims to explore these questions and foster interdisciplinary dialogue on the topic.

Motivations for Involvement in Philosophy of Science:
George Soros’s primary area of expertise is philosophy of natural science. He became involved in philosophy of science to demonstrate that certain ideologies, such as Marxism and Freudian psychology, were not scientific. His motivations were driven by social, political, and economic concerns.

Significance of the Conceptual Framework:
Soros views his conceptual framework as a reflection of his life story. He believes it is relevant to the history of the Central European University (CEU), where the presentation is taking place. The framework has a profound impact on his life and identity, encompassing intellectual, emotional, and personal aspects.

Hope for a Similar Role for Others:
Soros hopes that his conceptual framework may resonate with others in a similar manner. He believes it has the potential to play a significant role in shaping their lives.

Formative Experiences:
In 1944, Nazi Germany occupied Hungary, and George Soros, being a Jew, faced deportation and near-death. His father, having endured a similar experience during World War I, took precautions to protect the family.

Popper’s Influence:
Soros discovered Karl Popper’s book, “Open Society and Its Enemies,” during his time in England. Popper’s ideas, emphasizing the limitations of knowledge and the provisional nature of scientific truths, deeply resonated with Soros.

Questioning Assumptions:
Soros found it easier to question assumptions than to engage in complex mathematical calculations. This inclination led him to challenge the assumptions of perfect knowledge in economic theories.

Far from Equilibrium Experiences:
Soros describes his experiences during the Holocaust and the Russian occupation as “far from equilibrium.” These experiences shaped his understanding of the world and the need to adapt and take action in extraordinary circumstances.

Navigating Uncertainties:
Soros learned from his father’s experiences that normal rules may not apply in extreme situations. This realization led him to take matters into his own hands to ensure survival.

Helping Others:
During the difficult times, Soros’ father not only protected his own family but also assisted others in surviving. This act of compassion and resilience left a lasting impact on Soros.

Intellectual Framework:
The formative experiences of Soros’ youth, particularly his exposure to Popper’s ideas and his survival during the Holocaust, contributed to the development of his intellectual framework. This framework emphasizes the provisional nature of knowledge, the importance of questioning assumptions, and the need for adaptability in uncertain times.

Conceptual Framework:
Soros developed a conceptual framework based on reflexivity, fallibility, and the human uncertainty principle. This framework was not confined to financial markets but proved valuable in them. Soros had to unlearn economics to understand the financial markets.

Philosophical Interests:
Soros remained interested in the philosophical aspects of his work. He wrote an essay called “The Burning of Consciousness” and sent it to Karl Popper. He published “The Alchemy of Finance” in 1987, outlining his abstract ideas using financial markets as a testing ground.

Academic Reception:
“The Alchemy of Finance” was largely ignored by academic economists. Business schools took it up and taught it to some extent.

Personal Significance:
Soros found the conceptual framework personally important, guiding his money-making and philanthropic efforts. He regarded himself as a failed philosopher due to the theory’s lack of progress.

Involvement in the Soviet System:
Through his foundations, Soros got involved in the Soviet system. He set up a network of foundations to support open societies and intellectual freedom.

Radical Fallibility:
Soros proposes the hypothesis of radical fallibility, positing that even true theories, due to their extensive exploitation and application, can become overextended, misleading, and inapplicable.

Fertile Fallacies:
Soros introduces the concept of fertile fallacies, linking them to boom-bust sequences observed in financial markets. Fertile fallacies are misconceptions or flaws in a trend or innovation that lead to market moves. Identifying fertile fallacies allowed Soros to exploit market moves and exit before reversals, leading to financial success.

CEU as a Fertile Fallacy:
Soros considers the Central European University (CEU) as a fertile fallacy from his perspective as the founder. He initially aimed to develop a constructive criticism of closed societies and a better understanding of open societies, but this proved to be an inappropriate goal. Despite this, CEU successfully fulfilled the genuine need to replace Marxist dogma with a more critical approach to the social sciences.

Foundational Philosophy for Foundations:
Soros sought to establish a philosophical foundation for foundations when founding the CEU. However, he recognizes that this was a fallacy, as the genuine need was to address the specific challenges of replacing Marxist dogma in the social sciences.

CEU’s Success:
CEU effectively fulfilled the need to replace Marxist dogma with a more critical approach to the social sciences.

CEU’s Academic Credentials:
CEU needed to establish its academic credentials as a new university. Initially, George Soros’s approach of reflexivity and fallibility was not accepted and deemed inappropriate for CEU’s involvement.

CEU’s Disciplinary Focus:
In the initial years, CEU focused on setting up departments before establishing the university as interdisciplinary. Disciplines came to dominate, leading to a conflict between the interdisciplinary nature and disciplinary structure.

Soros’s Involvement and Withdrawal:
Soros was actively involved in CEU’s setup but later withdrew due to the chaos and rapid development. He handed over the university to professional hands and became the chairman of the board. Soros pursued his intellectual development elsewhere to avoid conflict of interest and potential harm to CEU.

Financial Crisis and INET:
The 2008 financial crisis changed the status of Soros’s conceptual framework. It began to be recognized as relevant in explaining the financial crisis. Soros established the Institute for New Economic Thinking (INET) after the crisis. INET is involved in Oxford and CEU, fostering new economic thinking.

The Story of Soros’ Theory and INET:
Soros established INET to promote his theory and explore alternatives to mainstream economics. He maintained a distance from INET and CEU until recently. Soros hopes to bring new thinking to CEU through the journal study organized by the university.

Soros’ Criticism of Economics:
Soros has been a critic of communism, traditional economics, and market fundamentalism. He established INET after the financial crisis to move from criticism to constructing something new.

Future of Economics:
Soros believes the unsolved problem in economics is modeling uncertainty. He thinks that mainstream economics has been debunked by economists themselves. The task now is to create alternatives in various areas, including macroeconomics, income inequality, and defining the success of economics.

Questions and Discussion:
The session was opened up for questions from the audience. Audience members were asked to raise their hands and briefly introduce themselves before asking their questions.

Soros on Economic Imbalance:
Soros believes the world is still far from equilibrium due to efforts to prevent a financial crisis from becoming a depression. Quantitative easing has replaced financial credit with sovereign credit, leading to the Euro crisis and unresolved global imbalances. Unresolved issues like global warming add to the complexity of the situation.

Soros on Free Speech:
Soros acknowledges free speech as essential for open society but sees flaws in the concept. He argues that political discourse aims to manipulate perceptions and win elections, not necessarily to establish truth. Free speech can be harmful when it incites hate or violence, as seen in cases like the Rwandan genocide and the recent Moscow incident.

Soros on State Intervention:
Soros addresses the paradox of market fluctuations and state intervention. He recognizes that leaving markets to themselves can lead to boom-bust cycles, while state intervention raises concerns about power dynamics and potential closed societies. Soros emphasizes the need to find a balance between market forces and state intervention, considering the fallibility of both approaches.

Imperfections in Markets and Regulation:
Both markets and regulators are imperfect, highlighting the need to navigate a world with these limitations. Markets excel in recognizing and adapting to changes due to their faster pace.

The Marvel of Markets:
Markets possess a remarkable ability to adjust to change, demonstrated by their rapid and miraculous responses. This attribute surpasses the adjustment capabilities of authorities.

Bureaucratic Lag and Political Influences:
Authorities and regulators often lag behind due to their bureaucratic nature, leading to delayed responses to change. Political influences can impact markets, as spending on lobbying can be more beneficial than improving product quality.

Reconciling Imperfections:
The task lies in reconciling the imperfections of markets and regulators to strike a balance.

Audience Question:
A question from the audience seeks suggestions for enhancing interdisciplinary approaches at CEU in the coming years.

Complexity Theory and Interdisciplinary Approach:
George Soros emphasizes the significance of complexity theory in providing a framework for understanding economic phenomena. Eric Beinhoffer recommends an article by Soros that explores the integration of complexity theory and interdisciplinary approaches in economics. CEU is recognized for possessing the necessary elements to foster this interdisciplinary approach, combining economics, philosophy, and history.

Challenges and Opportunities in Economic Research:
Wade Hands acknowledges the challenge of establishing a proper philosophical foundation for economics. Hands emphasizes the need for ongoing conversations and openness to variety and change in economic methodology. The emergence of experimental and behavioral economics, technological advancements, and big data analysis are seen as potential disruptive influences on the discipline.

Reassessing Perfect Competition and Economic Methodology:
Hands discusses the historical development of the perfectly competitive model in economics. Adam Smith’s conjecture about the possibility of certain outcomes in a perfectly competitive economy is mentioned. Hands argues that while mathematical analysis has addressed this possibility, it may not be practically relevant to current economic issues. The debate now centers on the applicability of perfect competition as a framework for individual and governmental decision-making.

Keeping Economic Methodology Reflexive:
Hands highlights the role of economic methodology in maintaining awareness of the reflexivity issues faced in economic analysis. He advocates for keeping conversations open and promoting interactions among economists to address these issues.

Gratitude and Next Steps:
Eric Beinhoffer expresses gratitude to CDU for hosting the event and thanks the speakers, Mr. Gersaros and Professor Hans. Participants are invited to attend the workshop for further discussions, with refreshments provided as an incentive.