Reflexivity is everywhere: the entire monetary economy is based on reflexive expectations: think about everyone’s willingness to accept pieces of paper in exchange for goods and services. I accept your paper money because I expect everyone else will accept it, and every one else will because they believe everyone else will. The reality of money is the product of reflexive expectations. Fortunately the paper money bubble bursts only in times of hyperinflation. How much inflation is needed for the breakdown to occur? That is a matter of uncertainty. It depends on, among other things history, and people’s knowledge of that history. But it can also break down for reasons no one ever expected (consider the scenario of The Walking Dead).
Alex Rosenberg continues his thinking about Paul Krugman.