Socionomics: Difference between revisions
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'''Socionomics''' is a theory of [[collective human behavior]]. Its key hypothesis is that changes in [[social mood]] produce changes in the character of [[social action]], contrasting with the conventional assumption that social actions (events) determine the character of social mood. Socionomics further posits that social mood trends result from humans’ unconscious impulse to [[herd behavior|herd]] in contexts of [[uncertainty]]. Social mood is ultimately manifest in social activities, including those in the economic, financial, political and cultural realms. |
'''Socionomics''' is a theory of [[collective human behavior]]. Its key hypothesis is that changes in [[social mood]] produce changes in the character of [[social action]], contrasting with the conventional assumption that social actions (events) determine the character of social mood. Socionomics further posits that social mood trends result from humans’ unconscious impulse to [[herd behavior|herd]] in contexts of [[uncertainty]]. Social mood is ultimately manifest in social activities, including those in the economic, financial, political and cultural realms. |
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<ref name=Theorist>Prechter, Robert R., Jr. (Aug. 1979, June 2002). ''The Elliott Wave Theorist'', Elliott Wave International, Gainesville, GA.<vr />"[M]ass human psychology...is registering its changes in the barometer known as the DJIA. This idea helps to explain the cause of future events: changes in the mass emotional outlook. That’s what comes first....Increasingly optimistic people expand business; increasingly depressed people contract their businesses....Events do not shape the [mood] of the market; it is the [mood] behind the market that shape events."</ref> |
<ref name=Theorist>Prechter, Robert R., Jr. (Aug. 1979, June 2002). ''The Elliott Wave Theorist'', Elliott Wave International, Gainesville, GA.<vr />"[M]ass human psychology...is registering its changes in the barometer known as the DJIA. This idea helps to explain the cause of future events: changes in the mass emotional outlook. That’s what comes first....Increasingly optimistic people expand business; increasingly depressed people contract their businesses....Events do not shape the [mood] of the market; it is the [mood] behind the market that shape events."</ref> |
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The [[counter-intuitive]] premise of socionomics has gained attention in scholarly journals,<ref>Prechter, Robert R., Jr. (2001). "Unconscious Herding Behavior as the Psychological Basis of Financial Market Trends and Patterns," ''Journal of Psychology and Financial Markets'' [now ''Journal of Behavioral Finance''], vol. 2 no. 3, pp. 120-125. Also available [http://www.psychologyandmarkets.org/research/pdf/unconsious_herding.pdf here], retrieved June 27, 2007.</ref>{{ |
The [[counter-intuitive]] premise of socionomics has gained attention in scholarly journals,<ref>Prechter, Robert R., Jr. (2001). "Unconscious Herding Behavior as the Psychological Basis of Financial Market Trends and Patterns," ''Journal of Psychology and Financial Markets'' [now ''Journal of Behavioral Finance''], vol. 2 no. 3, pp. 120-125. Also available [http://www.psychologyandmarkets.org/research/pdf/unconsious_herding.pdf here], retrieved June 27, 2007.</ref>{{Verify credibility|article|date=August 2007}}<ref>Olson, Kenneth R. (2006). "A Literature Review of Social Mood," ''[[Journal of Behavioral Finance]]'', vol. 7, no. 4 ([http://www.leaonline.com/doi/abs/10.1207/s15427579jpfm0704_2 abstract here]), pp. 193-203.</ref>{{Verify credibility|article|date=August 2007}}<ref name=Dichotomy>Prechter, Robert R., Jr., and Wayne D. Parker (2007). "The Financial/Economic Dichotomy in Social Behavioral Dynamics: The Socionomic Perspective," ''Journal of Behavioral Finance'', vol. 8 no. 2 ([http://www.leaonline.com/doi/abs/10.1080/15427560701381028 abstract here]), pp. 84-108. </ref>{{Verify credibility|article|date=August 2007}} books,<ref>[http://www.ftpress.com/bookstore/product.asp?isbn=0131345974&rl=1 Kahn, Michael N. (2006). ''Technical Analysis Plain and Simple'', Indianapolis, IN: FT Press], pp. 127-128. ISBN 0-13-134597-4.</ref><ref>Dorsey, Woody (2003). ''[http://ecatalog.thomsonlearning.com/155/lpext.dll?f=XMLHitList&qf=DCQuery&ht=catalog.xml&d=swep/1587991640&sf=item&p=&po=&q=%255Bor%253A%255Bfield%2CISBN%253AWoody%2520Dorsey%255D%255Bfield%2CProductIsbnIssnFormatted%253AWoody%2520Dorsey%255D%255Bfield%2CDescription%253A%255Bor%253A%255Bstem%253AWoody%2520Dorsey%255D%255D%255D%255Bfield%2CCombined_Title%253A%255Bor%253A%255Bstem%253AWoody%2520Dorsey%255D%255D%255D%255Bfield%2Cauthor%253A%255Bor%253AWoody%2520Dorsey%255D%255D%255D&list=ProductIsbnIssnFormatted&xsl=productdescription.xsl&p1=1-58799-164-0 Behavioral Trading: Methods for Measuring Investor Confidence and Expectations]'', New York: Texere, pp. 26-27. ISBN 1-58799-164-0.</ref> and the popular press;<ref>Szala, Ginger, and James T. Holter (Nov. 2004). "Storm Warning! How Social Mood Drives Markets," ''[[Futures]]'' (cover).</ref><ref>Penn, David, "Social Mood and the Markets" (June 2003). ''[[Technical Analysis of Stocks & Commodities]]'', p. 50.</ref> at academic conferences;<ref name=Pareto>Parker, Wayne D., and Robert R. Prechter Jr. (2006). "The Socionomic Theory of Finance and the Institution of Social Mood: Pareto and the Sociology of Instinct and Rationalization," presented at the meeting of the Association for Heterodox Economics, London, England, July 14-16, 2006 ([http://www.socionomics.org/pdf/socionomics_pareto.pdf document here]).</ref> and in research funded by the [[National Science Foundation]].<ref>[http://www.electionstudies.org/announce/newsltr/ANES_OCwinners_20060929.pdf Announcement of this research by the American National Election Studies].</ref> |
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==The socionomic model== |
==The socionomic model== |
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In 2005, finance professor and socionomist John Nofsinger elaborated on the premise that mood regulates [[macroeconomic]] trends: |
In 2005, finance professor and socionomist John Nofsinger elaborated on the premise that mood regulates [[macroeconomic]] trends: |
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<blockquote>The optimism of rising social mood stimulates investment, hiring, and expansion. The emotions move to euphoria as social mood peaks. The peaking mood fosters risk seeking behavior and excesses….This part of the cycle can be associated with stock market bubbles and corporate mis-behavior. As the euphoria wears out, social mood begins to decline. Pessimism takes over. Lenders recall loans, corporate scandals are revealed, investors sell stocks, and companies layoff employees. The declining mood eventually bottoms…[which] sets the stage for the next rise in social mood and the next business cycle.<ref>Nofsinger, John (2005). "Social Mood and Financial Economics," ''[[Journal of Behavioral Finance]]'', vol. 6 no. 3, ([http://zonecours.hec.ca/documents/H2006-1-640075.Texte19-30-253-00-E05-SocialMood...(2).pdf document here]), pp. 36-37.</ref>{{syn}}{{ |
<blockquote>The optimism of rising social mood stimulates investment, hiring, and expansion. The emotions move to euphoria as social mood peaks. The peaking mood fosters risk seeking behavior and excesses….This part of the cycle can be associated with stock market bubbles and corporate mis-behavior. As the euphoria wears out, social mood begins to decline. Pessimism takes over. Lenders recall loans, corporate scandals are revealed, investors sell stocks, and companies layoff employees. The declining mood eventually bottoms…[which] sets the stage for the next rise in social mood and the next business cycle.<ref>Nofsinger, John (2005). "Social Mood and Financial Economics," ''[[Journal of Behavioral Finance]]'', vol. 6 no. 3, ([http://zonecours.hec.ca/documents/H2006-1-640075.Texte19-30-253-00-E05-SocialMood...(2).pdf document here]), pp. 36-37.</ref>{{syn}}{{Verify credibility|article|date=August 2007}}</blockquote> |
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==Criticism== |
==Criticism== |
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==Current research== |
==Current research== |
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In June 2007, the ''[[Journal of Behavioral Finance]]'' published Prechter and Parker's paper, "The Financial/Economic Dichotomy in Social Behavioral Dynamics: The Socionomic Perspective."[[Image: |
In June 2007, the ''[[Journal of Behavioral Finance]]'' published Prechter and Parker's paper, "The Financial/Economic Dichotomy in Social Behavioral Dynamics: The Socionomic Perspective."[[Image:JBF tbl2 png24a.png|thumb|330px|From the Journal of Behavioral Finance.]] The authors' socionomic theory of finance (STF) ranges from the individual neurological level to the behavior of societies. They argue that while economic principles such as the law of [[supply and demand]] apply in the market for utilitarian goods and services, a "law of patterned herding" applies in [[financial markets]]: |
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<blockquote>In finance, uncertainty about valuations by other homogeneous agents induces unconscious, non-rational herding, which follows endogenously regulated fluctuations in social mood, which in turn determine financial fluctuations.<ref name=Dichotomy/>{{ |
<blockquote>In finance, uncertainty about valuations by other homogeneous agents induces unconscious, non-rational herding, which follows endogenously regulated fluctuations in social mood, which in turn determine financial fluctuations.<ref name=Dichotomy/>{{Verify credibility|article|date=August 2007}}</blockquote> |
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While accepting economic theory in the economic realm, the authors challenge many conventional assertions about financial behavior, as shown in the table at the right from their paper. |
While accepting economic theory in the economic realm, the authors challenge many conventional assertions about financial behavior, as shown in the table at the right from their paper. |
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Revision as of 07:44, 3 August 2007
An editor has nominated this article for deletion. You are welcome to participate in the deletion discussion, which will decide whether or not to retain it. |
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Socionomics is a theory of collective human behavior. Its key hypothesis is that changes in social mood produce changes in the character of social action, contrasting with the conventional assumption that social actions (events) determine the character of social mood. Socionomics further posits that social mood trends result from humans’ unconscious impulse to herd in contexts of uncertainty. Social mood is ultimately manifest in social activities, including those in the economic, financial, political and cultural realms.
The word "socionomics" was coined by Robert Prechter and explained in his book The Wave Principle of Human Social Behavior (1999). A market analyst and expositor of R.N. Elliott's Wave Principle, Prechter has been developing the idea since 1979: [1]
The counter-intuitive premise of socionomics has gained attention in scholarly journals,[2][unreliable source?][3][unreliable source?][4][unreliable source?] books,[5][6] and the popular press;[7][8] at academic conferences;[9] and in research funded by the National Science Foundation.[10]
The socionomic model
The socionomic model of social causality posits four principles regarding self-organized, complex human systems:
- In contexts of uncertainty, people share an unconscious impulse to herd which is manifested in social mood trends;
- These social mood trends reflect self-similar fractal patterns and thus are predictable within a range of probabilities;
- Endogenous processes (not exogenous causes) create these patterns of collective behavior; and
- Social mood trends both cause and govern the character of social actions in financial markets, economic production, fashions, politics, climates for peace and war, and other domains.[4]
By stipulating that social mood motivates social behavior, socionomics challenges the popular understanding of news events and their influence. Many academics and traders of the technical analysis school have long been skeptical that news events cause price moves in financial markets, pointing to research showing the absence of any such linkage.[11] Prechter's socionomic analysis of the Enron accounting scandal and its aftermath,[1] and its further treatment by mathematician John Casti, argues clearly that news is not a cause but a result.[12]
From the wave principle to socionomics
 | This article contains too many or overly lengthy quotations. |
Prechter says that socionomics expands upon the insight of R.N. Elliott’s model of the financial markets, namely that the collective buying and selling decisions of investors produce recognizable patterns of price movement (or waves). Prechter says that in turn, these patterns reflect crowd behavior:
In humans, an unconscious herding impulse impels social mood trends and changes that are specifically patterned according to a natural growth principle [that] is the engine of cultural expression and social action.[13]
If stock market trends reflect social mood trends, the emotions associated with those trends must have other manifestations. An examination of the major areas of social mood expression where data are available shows that they do, as popular cultural trends peak and trough coincidentally with the stock market....[13]
Prechter's correlation of cultural and economic trends appeared in his earliest writings (1969).[14] His first detailed description of social mood as the engine of financial and cultural behavior dates from August 1985[14] and reached a national audience in the September 1985 cover article in Barron's, "Elvis, Frankenstein and Andy Warhol." Prechter said that the psychological import of sentiment indicators such as Wall Street's renowned "hemline indicator"[15][16] is authentic and far larger in scope:
For the trend in stock prices is a reflection of popular moods within the investment community, and by extension, within society at large....Trends in music, movies, fashion, literature, television, popular philosophy, sports, dance, automobile style, mores, sexual identity, family life, campus activities, politics and poetry, all reflect the prevailing mood of society.[17]
This emphasis on the role of social mood was at odds with the "efficient markets" model, which was the defining view among economists and academics in the mid-1980s (and retains many supporters today). But the October 1987 stock market crash seemed inexplicable under standard financial models.[11] A growing number of academics began to study and write about investor psychology in the developing field of behavioral finance. Yale School of Management economist Robert Shiller, for example, spoke of mood in his 1990 book, Market Volatility:
Investing in speculative assets is a social activity….It is thus plausible that investors' behavior (and hence prices of speculative assets) would be influenced by social mood. Attitudes or fashions seem to fluctuate in many other popular topics of conversation, such as food, clothing, health, or politics. These fluctuations often occur widely in the population and often appear without any apparent logical reason. It is plausible that attitudes or fashions regarding investments would also change spontaneously....[18][improper synthesis?]
In 2005, finance professor and socionomist John Nofsinger elaborated on the premise that mood regulates macroeconomic trends:
The optimism of rising social mood stimulates investment, hiring, and expansion. The emotions move to euphoria as social mood peaks. The peaking mood fosters risk seeking behavior and excesses….This part of the cycle can be associated with stock market bubbles and corporate mis-behavior. As the euphoria wears out, social mood begins to decline. Pessimism takes over. Lenders recall loans, corporate scandals are revealed, investors sell stocks, and companies layoff employees. The declining mood eventually bottoms…[which] sets the stage for the next rise in social mood and the next business cycle.[19][improper synthesis?][unreliable source?]
Criticism
The relative newness of socionomic theory means there are as yet few formal critiques available. One on-the-record critic is economist and Professor Emeritus Donald Ratajczak:
There is a dramatic amount of information available. If you use subsets of that information, you can almost create any picture. Are you using a model that captures whatever subset of all available information fits into your current category?…if that’s what you’re doing, then over time, you’re going to be eliminating relevant information, basically defining your own picture.[20]
Geophysics Professor Didier Sornette said that the Ramsey Theory in mathematics
tells you that any sufficiently complex system will exhibit absolutely any pattern you want. For example, the naming of constellations in the sky. You have three thousand stars that are visible, and they show many types of patterns. You could recognize whatever pattern you want. Our brain has been wired due to evolution to recognize patterns very efficiently.[20]
Author and technical analyst David Aronson wrote about socionomics,
Many of the brilliant theories of science began as half-backed prescientific ideas on the wrong side of the falsifiability criterion. These ideas needed time to develop, and some turned into meaningful science. One example in [technical analysis] is the new field of socionomics, an outgrowth of Elliott Wave Theory. At the current time, I regard this newly developing discipline as prescientific, though it may have the potential to become a science.[21]
Current research
In June 2007, the Journal of Behavioral Finance published Prechter and Parker's paper, "The Financial/Economic Dichotomy in Social Behavioral Dynamics: The Socionomic Perspective."
The authors' socionomic theory of finance (STF) ranges from the individual neurological level to the behavior of societies. They argue that while economic principles such as the law of supply and demand apply in the market for utilitarian goods and services, a "law of patterned herding" applies in financial markets:
In finance, uncertainty about valuations by other homogeneous agents induces unconscious, non-rational herding, which follows endogenously regulated fluctuations in social mood, which in turn determine financial fluctuations.[4][unreliable source?]
While accepting economic theory in the economic realm, the authors challenge many conventional assertions about financial behavior, as shown in the table at the right from their paper.
Notes
- ^ a b Prechter, Robert R., Jr. (Aug. 1979, June 2002). The Elliott Wave Theorist, Elliott Wave International, Gainesville, GA.<vr />"[M]ass human psychology...is registering its changes in the barometer known as the DJIA. This idea helps to explain the cause of future events: changes in the mass emotional outlook. That’s what comes first....Increasingly optimistic people expand business; increasingly depressed people contract their businesses....Events do not shape the [mood] of the market; it is the [mood] behind the market that shape events."
- ^ Prechter, Robert R., Jr. (2001). "Unconscious Herding Behavior as the Psychological Basis of Financial Market Trends and Patterns," Journal of Psychology and Financial Markets [now Journal of Behavioral Finance], vol. 2 no. 3, pp. 120-125. Also available here, retrieved June 27, 2007.
- ^ Olson, Kenneth R. (2006). "A Literature Review of Social Mood," Journal of Behavioral Finance, vol. 7, no. 4 (abstract here), pp. 193-203.
- ^ a b c Prechter, Robert R., Jr., and Wayne D. Parker (2007). "The Financial/Economic Dichotomy in Social Behavioral Dynamics: The Socionomic Perspective," Journal of Behavioral Finance, vol. 8 no. 2 (abstract here), pp. 84-108.
- ^ Kahn, Michael N. (2006). Technical Analysis Plain and Simple, Indianapolis, IN: FT Press, pp. 127-128. ISBN 0-13-134597-4.
- ^ Dorsey, Woody (2003). Behavioral Trading: Methods for Measuring Investor Confidence and Expectations, New York: Texere, pp. 26-27. ISBN 1-58799-164-0.
- ^ Szala, Ginger, and James T. Holter (Nov. 2004). "Storm Warning! How Social Mood Drives Markets," Futures (cover).
- ^ Penn, David, "Social Mood and the Markets" (June 2003). Technical Analysis of Stocks & Commodities, p. 50.
- ^ Parker, Wayne D., and Robert R. Prechter Jr. (2006). "The Socionomic Theory of Finance and the Institution of Social Mood: Pareto and the Sociology of Instinct and Rationalization," presented at the meeting of the Association for Heterodox Economics, London, England, July 14-16, 2006 (document here).
- ^ Announcement of this research by the American National Election Studies.
- ^ a b Cutler, David M., James M. Poterba, Lawrence H. Summers (March 1988). "What Moves Stock Prices?", NBER Working Paper #2538, pp. 13-14.
- ^ Casti, John (August 2002). "I know what you'll do next summer," New Scientist, p. 32.
- ^ a b Prechter, Robert R., Jr. (1999). The Wave Principle of Human Social Behavior, Gainesville, GA: New Classics Library, pp. 15, 237. ISBN 0-932750-54-0.
- ^ a b Prechter, Robert R., Jr. (2003). Pioneering Studies in Socionomics, Gainesville, GA: New Classics Library, p. 454. ISBN 0-932750-56-7.
- ^ Montgomery, Paul M. (Aug. 20, 1975). “The Hemline Indicator of the Stock Market: Theoretic and Empiric Support,” Universal Economics. Also available here, retrieved June 25, 2007.
- ^ George Taylor, economist at the Wharton Business School, first developed this indicator in the late 1920s. See: Tsao, Amy (Sept. 7, 2004). “Don’t Go Long on Short Skirts,” BusinessWeek. Also available here, retrieved June 25, 2007.
- ^ Prechter, Robert R., Jr. (September 9, 1985). "Elvis, Frankenstein and Andy Warhol," Barron's.
- ^ Shiller, Robert (1990). Market Volatility, Cambridge, MA: MIT Press, p. 7. ISBN 026219290X.
- ^ Nofsinger, John (2005). "Social Mood and Financial Economics," Journal of Behavioral Finance, vol. 6 no. 3, (document here), pp. 36-37.
- ^ a b Moore, David Edmund, Director (2006). History's Hidden Engine [Documentary], Eyekiss Films.
- ^ Aronson, David R. (2006). Evidence-Based Technical Analysis, Hoboken, New Jersey: John Wiley and Sons, p. 151. ISBN 978-0-470-00874-4.
References
- Robert R. Prechter, Jr., The Wave Principle of Human Social Behavior and the New Science of Socionomics (Reissued 2002), New Classics Library. ISBN 0-93-275054-0 (paperbound: ISBN 0-93-275049-4).
- Robert R. Prechter, Jr., Pioneering Studies In Socionomics (2003), New Classics Library. ISBN 0-93-275056-7.