Soros's uncertainty principle is a vague form of Keynesian Uncertainty,not Heisenberg uncertainty

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	• The Alchemy of Finance (Wiley Investment Classics) George Soros Wiley, 2003 - 416 pages average customer review:based on 20 reviews view larger image
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This books deserves your attention

I have been reading Soros book for many weeks now and I still find myself in a world of confusion, realizing more but daunted by my obvious lack of understanding.
Let me first be clear that I am a student of economics and mathematics and the models that Soros 'debunks' are my departments bread and butter. I think many people have misunderstood the motive behind the work. Soros is perhaps struggling to come to terms with his own thought process (a task which is certainly not easy).
Having read a few reviews, it seems that many other readers have misunderstood the theory of reflexivity, and perhaps Soros motives for explanation.
Soros makes a great point that in natural science we prescribe laws that mimic nature as closely as possible i.e. F=ma will give us a consistent result each time, we can therefore move from theory to practice without great loss of accuracy (for lack of a better word). Soros says that the goal of science is to move ever closer to the truth. At the end of the day though nature does not care what equations we have crowbarred in to approximate nature. There is in essence a one way relationship.
In social science (and this is where reflexivity comes in) the same cannot be said. There is a dynamic relationship whereby each participant affects the other - a circular influential relationship.
Soros tries to debunk the economic models which govern our central banks, fiscal policy, social and economic constructs etc... by pointing to historical results. Underpinning all his philosophy is the fundamental belief that humans are fallible and that assumptions will be inaccurate, if this is the case then economic models will also be incorrect. He does not claim to hold the perfect knowledge, but believes current economic models are overly trusted.

The reason that I gave this book 4 stars is that I am honestly struggling to fully understand Soros thought process let alone his decision making. There certainly is a lot to take in, however having battled with the book, I really believe I am a more SOPHISTICATED investor. I cannot claim to be necessarily more successful after having read it, but that would be too easy.
Just as playing basketball with jordan will make you a better basketballer, one cannot necessarily expect to emulate Soros just by reading his book.
I am now more aware of the subtle philosophical ebb and flow which is 'underground' and for that, this book alone is worth the price.

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Soros's uncertainty principle is a vague form of Keynesian Uncertainty,not Heisenberg uncertainty

Soros has written a thoughtful and interesting book.However,there is nothing that is new theoretically.It was all said in a much more detailed and specific form in Keynes's A Treatise on Probability(TP;1921),where uncertainty(Soros's uncertainty principle-see pp.6-10,40) was analyzed mathematically using the variable called the weight of the evidence,w, in chapter 26( the weight of the argument in chapter 6 provided the logical analysis).Keynes used the term uncertainty in the GT to denote the same basic phenomenon applied to decision making involving a significant lack of knowledge and information on (a) investment in long lived durable capital goods subject to technological innovation over time(Daniel Ellsberg's nearly identical concept of ambiguity improves on Keynes's completely original formulation),(b)financial markets, and (c)liquidity preference decisions concerning the amount of liquid assets to hold for speculative purposes.Keynesian expectations are liable to sudden changes because they are not representable by the normal distributions's standard deviation(Risk),which is the basic foundation of E Fama's Efficient Market Hypothesis,Milton Friedman's Monetarism,Robert Lucas's rational expectations,and Prescott and Kydland's real business cycle theory,etc.Keynes's analysis appears in chapter 12,pp.239-241 of chapter 17, and in pp.314-320 of the General Theory(1936;GT).It is interesting to note that Soros's own method of dealing with uncertainty,by using one's instinct and intuition ,is identical to the manner in which it was handled by Keynes.

Practically all of the examples from the financial markets used by Soros to show how his uncertainty principle(the reference to Heisenberg's uncertainty principle is defective since the probability distributions are known.What Heisenberg meant by uncertainty was risk.Only one of the two hypothesized probability distributions in Heisenberg's example can exist at any one moment of time) is operationalized could just as easily have been mistaken for Keynes's chapter 12 analysis in the GT.The value in Soros's book is that it provides a more modern set of examples that updates Keynes's chapter 12 analysis of how uncertainty impacts decision making.Risk is a very special case that occurs when there is no uncertainty about the future.Uncertainty automatically makes probability estimates indeterminate.They become intervals.
Soros will have to be much more specific in the future about his uncertainty principle(reflexivity) so that a reader will be able to differentiate what Soros has done from what Keynes did(one must also mention Frank Knight's and Joseph Schumpeter's contributions in this area,although they are not nearly as specific and technical as the contributions of Keynes and Ellsberg).

Soros needs to be devote much more time to reading and digesting Keynes's works.The few one liners that refer to Keynes in this book illustrate that Soros has not done all of his homework yet.A clear cut comparison -contrast between Keynes and Soros would allow a reader to decide what is original in Soros's approach and what is merely a variation on Keynes's theme of uncertainty impacting many of the most important financial and investment decisions that will determine the future.

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Still good for 2007

I found this book to be exceptional at explaining how capital inflows and outflows into a country's market, create a bias in market pricing. He goes into GREAT DEPTH in explaining the speculative component of these in/outflows and how they behave over time. Sometimes - by stabilizing or re-inforcing pricing and markets; othertimes by creating negative feedback and true disequilibrium. In addition, his discussions on trade imbalances, budget deficits, and servicing of the debt (i.e. interest repayments) was outstanding. Given the week dollar in late 2007, this book was particularly good in learning just how much currency plays were a part of the Soros portfolio in previous times of US market weakness. It also gave me a better understanding of how to understand volatile changes in the exchange rate based on changes in regulatory and fiscal policies.

So, it definitely helped affirm my feelings about continuing to increase hard currency holdings in my portfolio in foreign currencies. It also helped me learn how to be more observant in finding inflection points in market pricing and exchange rates, so that you can anticipate boom-busts (drastic reversals) or more gradual changes. For that alone, I am glad I read the book. It is also quite interesting to step inside the mind of such a very smart person!

I was fascinated at Soro's background in philosophy, and depth of knowledge. I did not know this about him, and it increased my respect for him (and helped me understand why he might think as he does), though the section could have used tighter editing.

For those who are engineers as I am, you might find his discussions on circles and feedback loops remind you of discussions in control theory in physical systems, where you have stable and unstable systesm. Instead, Soros uses social and philosophical analogies instead, which accounts for a large part of the book...

Readers of this book might like the book Trading Catalysts by Robert Webb.

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reviews: page 1, 2, 3, 4

New chapter by Soros on the secrets to his success along with a new Preface and Introduction.
New Foreword by renowned economist Paul Volcker
"An extraordinary . . . inside look into the decision-making process of the most successful money manager of our time. Fantastic." -The Wall Street Journal
George Soros is unquestionably one of the most powerful and profitable investors in the world today. Dubbed by BusinessWeek as "the Man who Moves Markets," Soros made a fortune competing with the British pound and remains active today in the global financial community. Now, in this special edition of the classic investment book, The Alchemy of Finance, Soros presents a theoretical and practical account of current financial trends and a new paradigm by which to understand the financial market today. This edition's expanded and revised Introduction details Soros's innovative investment practices along with his views of the world and world order. He also describes a new paradigm for the "theory of reflexivity" which underlies his unique investment strategies. Filled with expert advice and valuable business lessons, The Alchemy of Finance reveals the timeless principles of an investing legend.
This special edition will feature a new chapter by Soros on the secrets of his success and a new Foreword by the Honorable Paul Volcker, former Chairman of the Federal Reserve.
George Soros (New York, NY) is President of Soros Fund Management and Chief Investment Advisor to Quantum Fund N.V., a $12 billion international investment fund. Besides his numerous ventures in finance, Soros is also extremely active in the worlds of education, culture, and economic aid and development through his Open Society Fund and the Soros Foundation.

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