[deluz35]

Soros is not a great writer, but he does explain the boom/bust process in "The Alchemy of Finance". The epilogue is on the Crash of 1987. The idea of reflexivity is that far-from-equilibrium conditions can be created when participants do not adequately recognize that fundamentals are correlated to their own perceptions (e.g. credit ratings being calculated by debt ratios, which were affected by the banks' lending activity).

In most cases, the reflexivity effect is negligible. But if there is a sudden shift in sentiment or perception, in can result in a rapid reversal of supply/demand and a crash.

It usually seems to result from too many people chasing easy money in a speculative cycle (e.g. Nasdaq bubble 99-00). Too much leverage is applied in one direction until it is exhausted. Whether the reaction becomes a crash or a more gradual reversal depends on the insight and psychology the participants. If the brakes are applied too suddenly on a car going too fast, we get whiplash.