Peak Oil and Reflexivity and Peak Oil

A good many years ago, I read George Soros’ “The Alchemy of Finance”, which introduced me to the concept of reflexivity, which in a nutshell is when observers of a phenomenon can’t help but impact the phenomenon itself via their ‘observing’, thus changing the original underlying fundamentals and setting in motion a boom-bust dynamic (i.e. more exaggerated trends in both directions). Since Mr. Soros recently spoke to Congress regarding the oil futures market ‘bubble’, I thought I’d take a closer look at the concept of reflexivity, both as it relates to oil and commodities in general, as well as its broader implications for efforts in raising awareness of global resource constraints.


Though Soros applied the idea of reflexivity to financial markets (and had huge success), its origins are in social theory. Social (science) phenomena are influenced by a two-way interaction between perception and facts, thereby making it impossible to ascertain a true stand-alone ‘fact’. Thus, reflexivity is basically the ecological/systems concept of ‘positive feedback’ merged into the social sphere where thinking, acting human agents create circular relationships between cause and effect in real-time. Flanagan (1981) and others have argued that reflexivity complicates all three of the traditional roles that are typically played by a classical science: explanation, prediction and control. For example an anthropologist working in an isolated tribal village may impact the native peoples culture and behaviours in unknown ways- e.g. her observations will not be independent of her participation as an observer. This contrasts to the natural sciences, where one set of facts follows another irrespective of what anybody thinks. This is a central example of post hoc ergo propter hoc reasoning that is prevalent in modern Walrasian welfare economics.

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