George Soros, Nate Silver and Barack Obama: A Story of Reflexivity

November 13, 2012 2:11 pm

There is one theory that billionaire hedge fund manager George Soros famously said helped him ‘make money and spend money’. It is called the theory of reflexivity, here in Soros’ own words:

“I can state the core idea in two relatively simple propositions. One is that in situations that have thinking participants, the participants’ view of the world is always partial and distorted. That is the principle of fallibility. The other is that these distorted views can influence the situation to which they relate because false views lead to inappropriate actions. That is the principle of reflexivity. For instance, treating drug addicts as criminals creates criminal behavior. It misconstrues the problem and interferes with the proper treatment of addicts. As another example, declaring that government is bad tends to make for bad government.

In the real world, the participants’ thinking finds expression not only in statements but also, of course, in various forms of action and behavior. That makes reflexivity a very broad phenomenon that typically takes the form of feedback loops. The participants’ views influence the course of events, and the course of events influences the participants’ views. The influence is continuous and circular; that is what turns it into a feedback loop.”

(Source: FT)

On February 15 2012, Nate Silver published an article titled “The Fundamentals Now Favor Obama“. A quote from that article:

“Given Mr. Obama’s current approval ratings and consensus forecasts on the economy, he rates as about a 60 percent favorite to win the popular vote against Mitt Romney, with somewhat higher chances against any of the other Republicans running for the nomination. By contrast, in the November version of the model, Mr. Obama was an underdog to Mr. Romney, with a 40 percent chance of winning; the president’s approval ratings were about 6 points lower then and economic forecasts were somewhat more pessimistic.”

In June, Nate Silver wrote this (Election Forecast: Obama Begins With Tenuous Advantage):

“However, the outlook for the Nov. 6 election is much less certain, with Mr. Obama having winning odds of just over 60 percent. The forecast currently calls for Mr. Obama to win roughly 290 electoral votes, but outcomes ranging everywhere from about 160 to 390 electoral votes are plausible, given the long lead time until the election and the amount of news that could occur between now and then. Both polls and economic indicators are a pretty rough guide five months before an election.”

And of course, the probability numbers for Obama kept going up as we neared the polling date and time. We are not trying to imply that Reflexivity caused these numbers to go up since the subjects are ‘thinking’ in Soros’ terms. Our key argument is this:

1. Feedback loops have definitely been created. Sandy might have played a catalyst role, but the kind of visibility and background that Nate Silver brought to his predictions have definitely triggered Reflexivity.

2. Did that convert into votes? We don’t know. What we know is this: if one could quantify Nate’s reach in some way (number of pageviews could be a starting point) and tie that to the swing states geographically, and add to the argument with some kind of keyword/sentiment analysis on Twitter / Facebook, one can definitely see Reflexivity in action.

3. This might all be the stating the obvious – but the bigger point is this: this is not Reflexivity attributed to a set of folks talking about Obama – this is Reflexivity attributed to a person with a solid background making statements based on models. People then talk about it. Ask Obama’s data mining team. We are sure they saw some of that Reflexivity the day of the $2000 bet, and after that. It might have been Reflexivity on steroids, but Reflexivity, it was.

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