Mark Thoma offers a thorough, nuanced take on Roman Frydman’s theory of Imperfect Knowledge Economics (IKE) and George Soros’s ideas on the inability of people to predict the outcomes of financial and social change, which Soros calls “fallibility” and “reflexivity.”
Thoma says, “The importance of fallibility and reflexivity in markets, such as those for financial assets, raises a key question concerning the role of mathematical models in accounting for outcomes that are driven largely by participants’ expectations. Seeking to answer this question has led Frydman and Goldberg to develop Imperfect Knowledge Economics as a formal approach to macroeconomics and finance whose core premise is that there are inherent limits to what we can know about the processes driving aggregate outcomes.”
Read more here.
