George Soros extends his “theory of reflexivity” from abstraction to application in the realm of investing. His book, The New Paradigm for Financial Markets, offers a timely look at the credit crisis that reached crescendo in 2008. His views fall between prescience and vindication. Nevertheless, he concedes fallibility: “With all my great, deep understanding, I don’t always get the markets right.” In conversation with Ricardo Caballero, Soros recounts the formative experience of his life — surviving the German occupation of Hungary -- “a far from equilibrium situation.” He credits his father for recognizing that “the normal rules don’t apply” and falsifying documents permitting the family’s escape from fascism. Soros attributes his intellectual development during college to the philosophy of Karl Popper. This led him eventually to question the economic postulate of “perfect knowledge and perfect competition.” He concluded that markets do not exist in a vacuum nor spontaneously self-correct. Thinking participants introduce friction, inevitably influencing outcomes for better or worse. Soros characterizes this phenomenon as the cognitive function interfering with the manipulative function and vice versa, thus the reflexivity of his theory. “Path dependence is very much due to imperfect understanding,” he states and “actions have unintended consequences.” Time and again Soros has anticipated financial bubbles and capitalized on opportunities he foresaw. Caballero elicits his ideas on bubble formation and collapse. Soros’s metaphor is “people go on dancing even though they realize that the music is about to stop.” He says the most common bubble is real estate where the misconception is that value “is independent of the willingness to lend.” Soros asserts that a “superbubble has been growing for at least 25 years,” periodically manifested by the international banking crisis and Latin debt in the early ’80s; 1997’s emerging market crisis; the Internet technology...