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Reflexivity is a theory that feedback loop exists between perception and reality. In the economics it means that investors perception affects company fundamentals which in turn affects investors perception (thus the loop). The main proponent of reflexivity theory is George Soros, famous hedge fund manager and philanthropist, who believe that reflexivity disproves much of the economic theory and that it should receive more attention in the market analysis.

In layman's terms, the reflexivity theory states, that investors base their decisions on perception rather than on reality. Actions resulting from these perceptions than affect the reality, such as the stock prices. The whole process is a positive feedback loop that slowly forces the prices further from reality. Great example of reflexivity is for example the dot-com bubble from 1999 when the perception of value of Internet companies got far detached from the reality and bursted resulting into economic crisis.

More recently, reflexivity could be seen for example in the uprising of GME stock. Redditors learned of the hedge fund short positions on GME realising there's a potential for a short-squeeze. This initiated first wave in the opposite direction when people started to buy the GME stocks or call options on the stocks rising the price slowly higher. As the price rose the movement got momentum and more and more individuals and later on even large investors started betting on the GME stock price rising even more.