Reflexivity of Anticipations in Economics and Political Economy

  • Heikki PatomäkiEmail author
Living reference work entry


When the social reality is changing, we need to know also the following: What exactly is changing and why? To what extent is reflexivity involved in changes that take part in making the future uncertain and open? For instance, an announced policy change can become a self-altering prediction (or involve such a prediction), which is subject to contradictory and complementary determination, resulting either in net self-fulfilling or self-denying tendency. I approach these questions also by analyzing two significant real-world historical examples, the Euro crisis and global financial crises. Both examples involve reflexive predictions, reflexive feedback loops, and performativity. What I find particularly striking is how the capitalist market economy – with all the historical shifts and changes in its institutions, regulations, and political structures – has managed to retain at least some of its recurrent economic patterns. Further, I examine the general methodological problem of the absence of decisive tests between theories. This has consequences: normative and ideological positions evolve easily and tend to fortify themselves rapidly; and actors can modify, perhaps inadvertently, their public anticipations in line with their interests or normative aims. In the final section, I argue that the main aim of social sciences is not to predict accurately but to bring about desirable outcomes, explaining how to move from strategic actions and reflexive ideologies to emancipation.


Contrastive demi-regularity Emancipation Fallibility Goodhart’s law Lucas critique Self-altering tendency Uncertainty 


  1. Alker, H. (1996). Rediscoveries and reformulations. Humanistic methodologies for international studies. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
  2. Apel, K. (2001). The response of discourse ethics to the moral challenge of the human situation as such and especially today. Leuven: Peeters.Google Scholar
  3. Atkinson, A., & Brandolini, A. (2009). On data: A case study of the evolution of income inequality across time and across countries. Cambridge Journal of Economics, 3(3), 381–404.CrossRefGoogle Scholar
  4. Barro, R. (1974). Are government bonds net wealth? Journal of Political Economy, 82(6), 1095–1117.CrossRefGoogle Scholar
  5. Bhaskar, R. (1998). The possibility of naturalism. A philosophical critique of the contemporary human sciences (3rd ed.). London/New York: Routledge.Google Scholar
  6. Bigo, V., & Negru, I. (2014). Mathematical modelling in the wake of the crisis: A blessing or a curse? What does the economics profession say? Cambridge Journal of Economics, 38(2), 329–347.CrossRefGoogle Scholar
  7. Bronk, R. (2013). Reflexivity unpacked: Performativity, uncertainty and analytical monocultures. Journal of Economic Methodology, 20(4), 343–349.CrossRefGoogle Scholar
  8. Centre for Research on Multinational Corporations. (2011). Newsletter – EU financial reforms, part of the project towards a global finance system at the Service of Sustainable Development.
  9. Chao, H. (2000). Milton Friedman and the emergence of the permanent income hypothesis, LSE Centre for Philosophy of Natural and Social Science Measurement in Physics and Economics, Technical report 9/2000. withCoverMeasurement/Meas-DP%2009%2000.pdf.
  10. Chick, V., & Dow, S. (2005). The meaning of open systems. Journal of Economic Methodology, 12(3), 363–381.CrossRefGoogle Scholar
  11. Clements, M. P., & Hendry, D. F. (1999). On winning forecasting competitions in economics. Spanish Economic Review, 1(2), 123–160.CrossRefGoogle Scholar
  12. Council of the European Union. (2012). Treaty on stability, coordination, and governance in the economic and monetary union.
  13. Courakis, A. (Ed.). (1981). Inflation, depression, and economic policy in the west. Totowa: Barnes & Noble Press.Google Scholar
  14. Dequech, D. (2011). Uncertainty: A typology and refinements of existing concepts. Journal of Economic Issues, 45(3), 621–640.CrossRefGoogle Scholar
  15. Duesenberry, J. S. (1949). Income, saving and the theory of consumer behaviour. Cambridge, MA: Harvard University Press.Google Scholar
  16. European Commission. (2018). Spring 2018 Economic Forecast – Statistical annex.
  17. Fama, E. (1970). Efficient capital markets: A review of theory and empirical work. Journal of Finance, 25(2), 383–417.CrossRefGoogle Scholar
  18. Friedman, M. (1957). A theory of the consumption function. Princeton: Princeton University Press.
  19. Giddens, A. (1979). Central problems in social theory. Los Angeles: University of California Press.CrossRefGoogle Scholar
  20. Goodhart, C. (1981). Problems of monetary management: The U.K. experience. In A. S. Courakis (Ed.), Inflation, depression, and economic policy in the west (pp. 111–146). Totowa: Barnes & Noble Press.Google Scholar
  21. Gordon, R. J. (1976). Can econometric policy evaluations be salvaged? – A comment. Carnegie-Rochester Conference Series on Public Policy, 1, 47–61.CrossRefGoogle Scholar
  22. Grunberg, E., & Modigliani, F. (1954). The predictability of social events. Journal of Political Economy, 62(6), 465–478.CrossRefGoogle Scholar
  23. Habermas, J. (1990). Moral consciousness and communicative action (trans: Lenhardt, C., & Nicholsen, S.W.). Cambridge, MA: The MIT Press.Google Scholar
  24. Hendry, D. F. (1983). On Keynesian model building and the rational expectations critique: A question of methodology. Cambridge Journal of Economics, 7, 69–75.Google Scholar
  25. Hendry, D. F. (1985). Monetary economic myth and econometric reality. Oxford Review of Economic Policy, 1(1), 72–84.CrossRefGoogle Scholar
  26. Hendry, D. F. (1997). The econometrics of macroeconomic forecasting. Economic Journal, 107(444), 1330–1357.CrossRefGoogle Scholar
  27. Henshel, R. L. (1993). Do self-fulfilling prophecies improve or degrade predictive accuracy? How sociology and economics can disagree and both be right. The Journal of Socio-Economics, 22(2), 85–104.CrossRefGoogle Scholar
  28. Herman, E. S. (1995). Triumph of the market: Essays on economics, politics and the media. Boston: South End Press.Google Scholar
  29. International Monetary Fund. (2016). Global financial stability report – Fostering stability in a low-growth, low-rate era. Washington, DC: International Monetary Fund.Google Scholar
  30. International Monetary Fund. (2017). Global financial stability report: Is growth at risk? Washington, DC: International Monetary Fund.Google Scholar
  31. International Monetary Fund. (2018). Global financial stability report: A bumpy road ahead. Washington, DC: International Monetary Fund.Google Scholar
  32. Keynes, J. M. 1961/1936. The general theory of employment, interest and money. London: Macmillan.Google Scholar
  33. Keynes, J. M. 2008/1920. A treatise on probability. London: Rough Draft Printing/MacMillan.Google Scholar
  34. Kindleberger, C. (1978). Manias, panics, and crashes: A history of financial crises. London: Macmillan.CrossRefGoogle Scholar
  35. Lagerspetz, E. (1988). Reflexive predictions and strategic actions. Social Science Information, 27(2), 307–320.CrossRefGoogle Scholar
  36. Lawson, T. (1997). Economics and reality. London: Routledge.CrossRefGoogle Scholar
  37. Lawson, T. (2015). The nature and state of modern economics. London: Routledge.CrossRefGoogle Scholar
  38. Lucas, R. E. (1972). Expectations and the neutrality of money. Journal of Economic Theory, 4(2), 103–124.CrossRefGoogle Scholar
  39. Lucas, R. E. (1976). Econometric policy evaluation: A critique. In K. Brunner & A. Meltzer (Eds.), The Phillips curve and labor markets (pp. 19–46). Amsterdam: North Holland Publishing Company.Google Scholar
  40. MacKenzie, D. (2006). An engine, not a camera: Finance theory and the making of markets. Cambridge: MIT Press.CrossRefGoogle Scholar
  41. MacKenzie, D., Muniesa, F., & Siu, L. (2007). Do economist make markets? On the performativity of economics. Princeton: Princeton University Press.Google Scholar
  42. Mackinnon, L. (2005). Ideational reflexivity in economic systems. In L. Mackinnon (Ed.), The social construction of economic man: The genesis, spread, impact and institutionalisation of economic ideas. Unpublished doctoral dissertation, University of Queensland, Brisbane, Ch 11.
  43. Martins, N. O. (2018). Critical realism, economics, and heterodox economics. In F. S. Lee, B. Cronin, & E. Elgar (Eds.), Handbook of research methods and applications in heterodox economics (pp. 222–236). Cheltenham/Northampton: Edward Elgar Publishing.Google Scholar
  44. Merton, R. K. (1948). The self-fulfilling prophecy. The Antioch Review, 8(2), 193–210.CrossRefGoogle Scholar
  45. Minsky, H. (1982). Can “it” happen again? Essays on instability and finance. Armonk: M.E. Sharpe.Google Scholar
  46. Minsky, H. (2008). Stabilizing and unstable economy (2nd ed.). New York: McGraw Hill.Google Scholar
  47. Mirowski, P. (2014). Never let a serious crisis go to waste. How neoliberalism survived the financial meltdown. London: Verso.Google Scholar
  48. Morgan, J. (2015). Is economics responding to critique? What do the UK 2015 QAA subject benchmarks indicate? Review of Political Economy, 27(4), 518–538.CrossRefGoogle Scholar
  49. Nasir, A., & Morgan, J. (2018). The unit root problem: Affinities between ergodicity and stationarity, its practical contradictions for central Bank policy, and some consideration of alternatives. Journal of Post Keynesian Economics, first online 10 Apr 2018, Scholar
  50. Palley, T. I. (2013). Financialization: What it is and why it matters. In Financialization (pp. 17–40). London: Palgrave Macmillan.Google Scholar
  51. Patomäki, H. (2001). Democratising globalisation. The leverage of the Tobin tax. London: Zed Books.Google Scholar
  52. Patomäki, H. (2002). After international relations. Critical realism and the (re)construction of world politics. London/New York: Routledge.Google Scholar
  53. Patomäki, H. (2006). Global justice: A democratic perspective. Globalizations, 3(2), 99–120.CrossRefGoogle Scholar
  54. Patomäki, H. (2010). What next? An explanation of the 2008-9 slump and two scenarios of the shape of things to come. Globalizations, 7(1), 67–84.CrossRefGoogle Scholar
  55. Patomäki, H. (2013). The great eurozone disaster: From crisis to global new deal. London/New York: Zed Books.Google Scholar
  56. Patomäki, H. (2017). Capitalism: Competition, conflict, crisis. Journal of Critical Realism, 16(5), 537–543.CrossRefGoogle Scholar
  57. Patomäki, H. (2018). Disintegrative tendencies in global political economy: Exits and conflicts. London/New York: Routledge.Google Scholar
  58. Patomäki, H. (forthcoming). The ideal of competitive markets. On the social psychology and politics of neoclassical theory, resubmitted after major revisions to Cambridge Journal of Economics in June 2018, pending for final decision.Google Scholar
  59. Perelman, C. (1963). The idea of justice and the problem of argument. London: Routledge & Kegan Paul.Google Scholar
  60. Pratten, S. (2005). Economics as progress: The LSE approach to econometric modelling and critical realism as programmes for research. Cambridge Journal of Economics, 29(2), 179–205.CrossRefGoogle Scholar
  61. Rawls, J. (1971). A theory of justice. The original edition. Cambridge, MA: The Belknap Press of Harvard University Press.Google Scholar
  62. Reid, J., Nicol, C., Burns, N., & Chanda, S. (2017). Long-term asset return study: The next financial crisis. London: Deutsche Bank Markets Research.Google Scholar
  63. Robinson, J. (1980). Time in economic theory. Kyklos, 33(2), 219–229.CrossRefGoogle Scholar
  64. Sargent, T., & Wallace, N. (1975). “Rational” expectations, the optimal monetary instrument and the optimal money supply rule. Journal of Political Economy, 83(2), 231–254.CrossRefGoogle Scholar
  65. Sayer, A. (2011). Why things matter to people. Social science, values and ethical life. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
  66. Schumpeter, J. (1939). Business cycles (Vol. 1). New York/London: McGraw-Hill.Google Scholar
  67. Schweickart, D. (1993). A democratic theory of economic exploitation dialectically developed. In R. Gottlieb (Ed.), Radical philosophy. Tradition, counter-tradition, politics (pp. 101–122). Philadelphia: Temple University Press.Google Scholar
  68. Shaikh, A. (2013). On the role of reflexivity in economic analysis. Journal of Economic Methodology, 20(4), 439–445.CrossRefGoogle Scholar
  69. Shaikh, A. (2016). Capitalism: Competition, conflict, crises. New York: Oxford University Press.CrossRefGoogle Scholar
  70. Simon, H. A. (1954). Bandwagon and underdog effects and the possibility of election predictions. Public Opinion Quarterly, 18(3), 245–253.CrossRefGoogle Scholar
  71. Sims, C. A., Goldfeld, S. M., & Sachs, J. D. (1982). Policy analysis with econometric models. Brookings Papers on Economic Activity, 1982(1), 107–164.CrossRefGoogle Scholar
  72. Soros, G. (1998). The crisis of global capitalism: Open society endangered. London: Little, Brown.Google Scholar
  73. Soros, G. (2008). The crash of 2008 and what it means: The new paradigm for financial markets. Melbourne: Scribe.Google Scholar
  74. Soros, G. (2013). Fallibility, reflexivity, and the human uncertainty principle. Journal of Economic Methodology, 20(4), 309–329.CrossRefGoogle Scholar
  75. Stiglitz, J. E. (2010). Lessons from the global financial crisis of 2008. Seoul Journal of Economics, 23(3), 321–339.
  76. Van der Zwan, N. (2014). Making sense of financialization. Socio-Economic Review, 12(1), 99–129.CrossRefGoogle Scholar
  77. Wilcox, D. (1989). Social security benefits, consumption expenditure, and the life cycle hypothesis. Journal of Political Economy, 97(2), 288–304.CrossRefGoogle Scholar

Copyright information

© Springer Nature Switzerland AG 2019

Authors and Affiliations

  1. 1.Faculty of Social SciencesUniversity of HelsinkiHelsinkiFinland

Personalised recommendations