Self-fulfilling Prophecy - History of The Concept

History of The Concept

Merton's concept of the self-fulfilling prophecy stems from the Thomas theorem, which states that "If men define situations as real, they are real in their consequences." According to Thomas, people react not only to the situations they are in, but also, and often primarily, to the way they perceive the situations and to the meaning they assign to these perceptions. Therefore, their behaviour is determined in part by their perception and the meaning they ascribe to the situations they are in, rather than by the situations themselves. Once people convince themselves that a situation really has a certain meaning, regardless of whether it actually does, they will take very real actions in consequence.

Merton took the concept a step further and applied it to recent social phenomena. In his book Social Theory and Social Structure, he conceives of a bank run at the fictional Last National Bank, over which Cartwright Millingville presides. It is a typical bank, and Millingville has run it honestly and quite properly. As a result, like all banks, it has some liquid assets (cash), but most of its assets are invested in various ventures. Then one day, a large number of customers come to the bank at once—the exact reason is never made clear. Customers, seeing so many others at the bank, begin to worry. False rumours spread that something is wrong with the bank and more customers rush to the bank to try to get some of their money out while they still can. The number of customers at the bank increases, as does their annoyance and excitement, which in turn fuels the false rumours of the bank's insolvency and upcoming bankruptcy, causing more customers to come and try to withdraw their money. At the beginning of the day—the last one for Millingville's bank—the bank was not insolvent. But the rumour of insolvency caused a sudden demand of withdrawal of too many customers, which could not be answered, causing the bank to become insolvent and declare bankruptcy. Merton concludes this example with the following analysis:

The parable tells us that public definitions of a situation (prophecies or predictions) become an integral part of the situation and thus affect subsequent developments. This is peculiar to human affairs. It is not found in the world of nature, untouched by human hands. Predictions of the return of Halley's comet do not influence its orbit. But the rumoured insolvency of Millingville's bank did affect the actual outcome. The prophecy of collapse led to its own fulfilment.

Merton concluded that the only way to break the cycle of self-fulfilling prophecy is by redefining the propositions on which its false assumptions are originally based.

In economic "expectations models" of inflation, peoples' expectations of future inflation lead them to spend more today and demand higher nominal interest rates for any savings, since they expect that prices will be rising. This demand for higher nominal interest rates and increased spending in the present, in turn, create inflationary pressure and can cause inflation even if the expectations of future inflation are unfounded. The expectations theory of inflation played a large role in Paul Volker's actions during his tenure as the Chairman of the Federal Reserve in combating the "stagflation" of the 1970s.

Philosopher Karl Popper called the self-fulfilling prophecy the Oedipus effect:

One of the ideas I had discussed in The Poverty of Historicism was the influence of a prediction upon the event predicted. I had called this the "Oedipus effect", because the oracle played a most important role in the sequence of events which led to the fulfilment of its prophecy. … For a time I thought that the existence of the Oedipus effect distinguished the social from the natural sciences. But in biology, too—even in molecular biology—expectations often play a role in bringing about what has been expected.

An early precursor of the concept appears in Edward Gibbon's Decline and Fall of the Roman Empire: "During many ages, the prediction, as it is usual, contributed to its own accomplishment" (chapter I, part II).