To The Moon

 Can using this theory help you make better economic and financial decisions? Let’s start with some definitions.

Qualitative research. Qualitative research gets data and information directly from others. For example, case studies, interviews, questionnaires, observation, and documents. The data is usually nonnumerical.

Subjectivity. This refers to how your opinion, biases, and feelings are affected by outside influences. So, someone growing up in poverty has a different set of prejudices than someone who grew up in a middle-class home. This also has a bearing on why a work of entertainment, a book, a work of art, or a baseball game, for example, is enjoyed by one person but not another. Some love Picasso’s work, and some think it’s junk.

By definition we can see that qualitative research must be subjective; that is, it is colored by the information-gatherer’s outlook.

Reflexivity advises the researcher to be aware of his/her mindset and how a study may be affected by them. It advises the researcher to question all the assumptions used in gathering the data to get a true picture of what the data is showing. In addition to analyzing the data, reflexivity asks you to analyze the collector of the data.

On the macro level reflexivity advises that there is feedback of the public’s perception of what’s happening in economics which changes economic fundamentals. Sort of a corollary to the self-fulfilling prophecy.

There are biases in the way the data is collected, the methods of collection, the way the data is analyzed, and the way the data is reported.

Restating reflexivity: The theory holds that the individual doesn’t base decisions on what’s really happening but rather on what they think is happening. These decisions, and the actions individuals take, change the current landscape. As a result, the current situation is upset. Stock market prices, for example, often veer off from reality.

Here’s an example of how reflexivity affects data collection. Notice how, at many musical auditions, contestants perform behind a curtain so that the judges will only be listening to the music. Their biases about hair style, clothing, gender, and appearance play no part in deciding which musician will be hired. Only the pure data, the music, is considered.

Back to economics and finance. The theory of reflexivity contradicts certain popular concepts. For example, the efficient market hypothesis. This theory states that all information is known and therefore stocks trade at their fair market value. Reflexivity says this fails to account for the fact that the public may be reading data which may have been skewed and corrupted by the prejudices of the data collectors.

George Soros, a billionaire investor, claims reflexivity has helped him amass his fortune. Soros looked at boom and bust cycles and developed a theory based on reflexivity to explain and take advantage of them. The rationalization he used is beyond the scope of this article, but it is available on the internet for those who wish to pursue this further.

The reflexive process is a tool that can help you authenticate qualitative research. But use it as an adjunct to your decision making. Try not to complicate your final decision too much. Focus on the problem and watch for interactions between the researcher and the data.

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