Fair Warning: Paradigm Shift

Posted On Feb 3, 2022 By Addison Wiggin

In 1962, physicist and philosopher Thomas Kuhn introduced the term “paradigm shift” — referring to advances in science that completely changed the way researchers viewed the world. These shifts all follow a set pattern. First, there is accepted truth. For instance, people saw the sun, moon and stars cross the sky and assumed it meant everything revolved around the Earth. Then along comes a technology that allows you to study something in a new way — say, for instance, a telescope. Researchers start seeing things that don’t fit the established paradigm, inspiring some brave souls to declare the current thinking is wrong. And while there will be some pushback, further research may indeed prove the radical conclusion is correct… which establishes a new paradigm. Hedge fund manager Ray Dalio has applied this concept to the financial markets. He says investors have a tendency to get locked into established paradigms — believing, for instance, that stocks always go up. Or that companies — even countries — can thrive while going deeper and deeper into debt. Then something happens to shatter that paradigm… like a globe-spanning hedge fund declaring bankruptcy. It leads to a period of market chaos as investors struggle to identify and understand the new paradigm. And we could soon be witnessing one in real time.

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