Another view on perfect information theory

In 1930s, there was a camp of economists considering that demand and supply could be analyzed independently. To the extreme, this thought was developed into the rational expectation theory. The reason of calling it "rational" is that it discount the irrational effects from participants. It somehow coincides with the perfect information theory.

Theory is theory. The rational expectation theory was disagreed by market participants. George Soros contended that the theory was a flaw even though the proponent of the theory was his mentor. He further developed two functions: cognitive and manipulating functions that representing the two sides of demands. Cognitive functions are to find out what the current states are and manipulating functions are to affect the states in participants' favor. The two functions are interacting all the time with great interference from participants' views. Participants can include regulators and market practioners. As there are no easy agreements on the interaction of these two functions, equillibrum can't be reached.

It means the perfect information theory is flawed.

What can be implied from this? Social science isn't as rigid as natural science, in which main goal is one-way process. On the other hand, social science has to deal with a two-way process. However, it is not easy to obtain full knowledge in such a two-way setup. Thus, scientists and scholars, in efforts to maintain that it is a science, tried to simplify the two-way problem with one-way assumption. That has caused many financial crises along the growth path of the financial markets and economical theories.