SELF-FULFILLING THEORY

By Zitian (Estella) Lu

I’m Estella, a second-year international King’s student majoring in finance and administration. I really enjoy and value the experience of my life at King’s, which provides me with an amazing platform for absorbing knowledge and networking.

Today, I want to share a super interesting macro-economic concept called "self-fulfilling theory." This concept was introduced by Professor Trevor Medeiros in ECON 1022 when we were talking about exchange rates. The exchange rate is actually the price of one currency in terms of another. Like all other prices, the exchange rate is determined in a market by limitless trades every second. Is a high exchange rate a good thing? Not necessarily. If you want another currency, a high exchange rate indicates that the price of that currency is high, and you will buy less with that currency as a rational consumer. However, if you are the supplier of this currency, a high exchange rate will help you generate more profit on this trade and make you more willing to supply the currency. Therefore, the exchange rate will influence the amount of currency being traded and reach an equilibrium exchange rate at the point with neither a shortage nor a surplus.

There are many factors that could affect the exchange rate, but people’s expectations and how they react are considered the main ones. This is actually what "self-fulfilling theory" is about. In some situations, the exchange rate does not necessarily have to change, but rational currency customers will react to shocks – expected or unexpected events that influence the current balance or situation of economy. For example, if a shock comes today and people predict the exchange rate will increase because of this shock, both demand and supply will change as a reaction to this shock. People who want this currency will increase their desire to purchase it because they know that the price will increase, making it less cost effective in the future, while suppliers will want to keep their currency and wait until the day of increased exchange rates before selling. Therefore, when the demand curve shifts rightward because demand is increasing and the supply curve shifts leftward because no suppliers want to sell right now, the intersection of the two curves will eventually make the exchange rate higher. In this situation, we learn that people’s expectations are important for the exchange rate market and sometimes directly influence how it changes.

Self-fulfilling theories can also be applied to our lives. Psychologists have found strong evidence for the impact of our beliefs and expectations on outcomes, especially when we are certain that our predictions will become reality, even if we are unaware that we hold the expectation. As the famous sociologist Robert Merton states, "A false definition of the situation evokes a new behaviour that makes the originally false conception come true."

The subjective mindset and attitude are crucial factors in the final result. When facing an obstacle, we should tell ourselves "I will make it happen if I try hard" instead of "I cannot and I want to quit," then trust yourself, and bravely take the first step. Maybe we are actually capable of achieving the desired outcome.

KING’S IN MY EYES

By Chris Abou Naoum

Selecting King’s to pursue my undergraduate degree was one of the best decisions I've made. What initially drew me to King’s was its association with the chartered financial analyst (CFA) program, which is recognized as the ultimate credential for professionals in the financial industry. This affiliation made King’s an obvious choice for me, as it made the program's difficulty much more manageable.

Additionally, the knowledge I’ve gained while enrolled in the Analytics and Decision Sciences (ADS) program at King’s is incredible, preparing me for the world's most in-demand industry. Furthermore, small class sizes and regular interaction with my professors have made my undergraduate experience exceptional. I have built strong relationships with my professors, allowing me to reach out to them whenever I need their assistance. I'm excited to continue my academic journey and eager to see what the future holds here at King’s!