Thursday, August 31, 2006

Soros on the dis-utility of the "Terror" Frame

George Soros has popularized a well studied, but alas not well known feature of human awareness under the rubric of Reflexivity. That is, humans tend to view the world through common frames, which pre-sorts, in a sense, their perceptions of experience.

In the world of finance, if market participants become bullish, i.e. if they adopt a bullish frame of mind, they will tend to focus on the positive until it becomes too painful to continue.

In an editorial in today's Boston Globe, Blinded by a Concept, Mr. Soros applies his notion of reflexivity to the Terror frame of mine, and warns that the pain is going to get worse until we drop it.

For the financially minded, remember that reflexivity leads one to Soros' trading maxim- find the trend whose premise is false, and bet against it.