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| {{AfDM|page=Socionomics (2nd nomination)|date=2007 July 30|substed=yes|origtag=afdx}} | |||
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| '''Socionomics''' is a theory of ]. Its key hypothesis is that changes in ] produce changes in the character of ], 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 ] in contexts of ]. Social mood is ultimately manifest in social activities, including those in the economic, financial, political and cultural realms. | |||
| The word "socionomics" was coined by ] and explained in his book ''The Wave Principle of Human Social Behavior'' (1999). A market analyst and expositor of ] ], Prechter has been developing the idea since 1979: | |||
| <ref name=Theorist>Prechter, Robert R., Jr. (Aug. 1979, June 2002). ''The Elliott Wave Theorist'', Elliott Wave International, Gainesville, GA.<vr />"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 of the market; it is the behind the market that shape events."</ref> | |||
| The ] 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'' , vol. 2 no. 3, pp. 120-125. Also available , retrieved June 27, 2007.</ref><ref>Olson, Kenneth R. (2006). "A Literature Review of Social Mood," '']'', vol. 7, no. 4 (), pp. 193-203.</ref><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 (), pp. 84-108. </ref> books,<ref>, pp. 127-128. ISBN 0-13-134597-4.</ref><ref>Dorsey, Woody (2003). '''', 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," '']'' (cover).</ref><ref>Penn, David, "Social Mood and the Markets" (June 2003). '']'', 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 ().</ref> and in research funded by the ].<ref>.</ref> | |||
| ==The socionomic model== | |||
| The socionomic model of social causality posits four principles regarding ], 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 ] patterns and thus are predictable within a range of probabilities; | |||
| # ] processes (not ] 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.<ref name=Dichotomy/> | |||
| 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 ] school have long been skeptical that news events cause price moves in financial markets, pointing to research showing the absence of any such linkage.<ref name=Moves>Cutler, David M., James M. Poterba, ] (March 1988). "What Moves Stock Prices?", NBER Working Paper #2538, pp. 13-14.</ref> Prechter's socionomic analysis of the ] accounting scandal and its aftermath,<ref name=Theorist/> and its further treatment by mathematician , argues clearly that news is not a cause but a result.<ref>Casti, John (August 2002). "I know what you'll do next summer," '']'', p. 32.</ref> | |||
| ==From the wave principle to socionomics== | |||
| {{quotefarm}} | |||
| 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: | |||
| <blockquote>In humans, an unconscious herding impulse impels social mood trends and changes that are specifically patterned according to a natural growth principle is the engine of cultural expression and social action.<ref name=Socionomics>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.</ref></blockquote> | |||
| <blockquote>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....<ref name=Socionomics/></blockquote> | |||
| Prechter's correlation of cultural and economic trends appeared in his earliest writings (1969).<ref name=Pioneering>Prechter, Robert R., Jr. (2003). ''Pioneering Studies in Socionomics'', Gainesville, GA: New Classics Library, p. 454. ISBN 0-932750-56-7.</ref> His first detailed description of social mood as the engine of financial and cultural behavior dates from August 1985<ref name=Pioneering/> and reached a national audience in the September 1985 cover article in '']'', "Elvis, Frankenstein and Andy Warhol." Prechter said that the psychological import of sentiment indicators such as Wall Street's renowned "hemline indicator"<ref>Montgomery, Paul M. (Aug. 20, 1975). “The Hemline Indicator of the Stock Market: Theoretic and Empiric Support,” ''Universal Economics''. Also available , retrieved June 25, 2007.</ref><ref>], 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,” '']''. Also available , retrieved June 25, 2007.</ref> is authentic and far larger in scope: | |||
| <blockquote>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.<ref>Prechter, Robert R., Jr. (September 9, 1985). "Elvis, Frankenstein and Andy Warhol," ''Barron's''.</ref></blockquote> | |||
| This emphasis on the role of social mood was at odds with the "]" model, which was the defining view among economists and academics in the mid-1980s (and retains many supporters today). But the ] seemed inexplicable under standard financial models.<ref name=Moves/> A growing number of academics began to study and write about investor psychology in the developing field of ]. ] economist ], for example, spoke of mood in his 1990 book, ''Market Volatility'': | |||
| <blockquote>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....<ref>Shiller, Robert (1990). , Cambridge, MA: MIT Press, p. 7. ISBN 026219290X.</ref>{{syn}}</blockquote> | |||
| In 2005, finance professor and socionomist John Nofsinger elaborated on the premise that mood regulates ] trends: | |||
| <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… sets the stage for the next rise in social mood and the next business cycle.<ref>Nofsinger, John (2005). "Social Mood and Financial Economics," '']'', vol. 6 no. 3, (), pp. 36-37.</ref>{{syn}}</blockquote> | |||
| ==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 ]: | |||
| <blockquote>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.<ref name=History>Moore, David Edmund, Director (2006). , Eyekiss Films.</ref></blockquote> | |||
| Geophysics Professor Didier Sornette said that the ] in mathematics | |||
| <blockquote>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.<ref name=History/></blockquote> | |||
| Author and technical analyst David Aronson wrote about socionomics, | |||
| <blockquote>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 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.<ref>Aronson, David R. (2006). , Hoboken, New Jersey: John Wiley and Sons, p. 151. ISBN 978-0-470-00874-4.</ref></blockquote> | |||
| ==Current research== | |||
| {{unreliable}} | |||
| In June 2007, the '']'' 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 ] apply in the market for utilitarian goods and services, a "law of patterned herding" applies in ]: | |||
| <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> | |||
| 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== | |||
| {{Reflist|2}} | |||
| == 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. | |||
| == See also == | |||
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