ABSTRACT
Before Soros, other social theorists have been baffled by this apparent circularity. Oskar Morgenstern gave one of the earliest formulations of the problem in his 1928 dissertation on Wirtschaftsprognose (economic forecast). One of his famous examples concerns two individuals – Holmes and Moriarty – playing a game of ‘hide and seek’ (Morgenstern, 1928, p. 98). If Holmes decides to take the train to Dover, Moriarty will try to catch him at the terminal station; Holmes should anticipate this, and stop at an intermediate station; but a rational Moriarty should anticipate Holmes’ anticipation, prompting Holmes to consider travelling all the way to Dover again, . . . and so forth for an infinite number of iterations. Morgenstern found this circularity – the fact that any move will provoke a symmetric defeating counter-move – extremely disturbing, and used it to draw pessimistic conclusions for the predictive ambitions of economic theory.
