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TECH TALK: Useful Concepts: Introduction, Reflexivity

July 14th, 2003 · No Comments

Entrepreneurs learn on the job. Each day, each experience has something new to teach. But there are times when it is useful to get some external background to help explain the world around. Reading, going to management school, talking to people from different backgrounds, blogging are all ways by which one can learn. What is true for me will not necessarily be true for you. The objective of knowing more is not to pass any exam, but to think about how these ideas apply to the business we are doing. If they can help us be better leaders, managers and entrepreneurs, then we are all the more richer for the experience.

In this weeks Tech Talk, I will talk about five concepts and my personal views on them. Each of these topics is linked with a book. These five topics are reflexivity, development economics, game theory, markets, and the five temptations of a CEO.

Reflexivity

The concept of Reflexivity was first explained to me to Atanu Dey recently. The concept originates in George Soros The Crisis of Global Capitalism. The book is not an easy read and talks about many other concepts as well. The byline is Open Society Endangered. The book was published in 1998.

I have excerpted below Soros theory of reflexivity from a talk he gave in 1994:

The theory of reflexivity holds that our thinking is inherently biased. Thinking participants cannot act on the basis of knowledge. Knowledge presupposes facts which occur independently of the statements which refer to them; but being a participant implies that ones decisions influence the outcome. Therefore, the situation participants have to deal with does not consist of facts independently given but facts which will be shaped by the decision of the participants. There is an active relationship between thinking and reality, as well as the passive one which is the only one recognized by natural science and, by way of a false analogy, also by economic theory.

I call the passive relationship the cognitive function and the active relationship the participating function, and the interaction between the two functions I call reflexivity. Reflexivity is, in effect, a two-way feedback mechanism in which reality helps shape the participants thinking and the participants thinking helps shape reality in an unending process in which thinking and reality may come to approach each other but can never become identical. Knowledge implies a correspondence between statements and facts, thoughts and reality, which is not possible in this situation. The key element is the lack of correspondence, the inherent divergence, between the participants views and the actual state of affairs. It is this divergence, which I have called the participants bias, which provides the clue to understanding the course of events. That, in very general terms, is the gist of my theory of reflexivity.

The theory has far-reaching implications. It draws a sharp distinction between natural science and social science, and it introduces an element of indeterminacy into social events which is missing in the events studied by natural science. It interprets social events as a never-ending historical process and not as an equilibrium situation. The process cannot be explained and predicted with the help of universally valid laws, in the manner of natural science, because of the element of indeterminacy introduced by the participants bias.

Why is the theory of relativity of reflexivity important? When we look at a situation, we should not just evaluate it as a static, unchangeable situation. Our actions can create biases alter the dynamics which can help change peoples perceptions about the reality, and therefore the reality itself. This is very much true of rural India, where a set of co-ordinated actions taken together, and led by a reckless entrepreneur can perhaps transform the scenario. But for this, we need to understand a bit of development economics.

Tomorrow: Development Economics

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