First published in 1987, The Alchemy of Finance is George Soros's most rigorous attempt to set out the intellectual framework behind his investment practice — and behind his broader thinking about history and politics.

Reflexivity

The book's core concept is reflexivity: financial markets are not passive mirrors of economic fundamentals but active participants that shape those fundamentals in turn. Participants act on expectations; those actions alter the reality being anticipated; the altered reality then feeds back into expectations. The result is a two-way loop rather than a convergence toward equilibrium.

This places Soros in direct opposition to the efficient market hypothesis, which assumes that prices incorporate all available information and that participants' biases cancel out. Soros argues the biases accumulate and compound — producing boom-bust sequences that cannot be explained by equilibrium models alone.

The real-time experiment

To demonstrate reflexivity in action, the book includes a diary of Soros's actual trading decisions at the Quantum Fund during a stretch of 1985–86. The experiment is deliberately exposed to failure: if the framework could not generate profitable predictions in real time, it would have to be revised. That willingness to be tested against reality is itself a reflection of Popperian epistemology.

Beyond finance

Soros extends reflexivity beyond markets to social and political systems more broadly. Boom-bust dynamics appear wherever participants' beliefs interact with the conditions those beliefs help create — in credit cycles, in geopolitics, and in the life of open societies under stress.