Socionomic Theory

Prechter’s “socionomic hypothesis” is that naturally occurring waves of social mood are the primary regulator of social action. They account for changes in the character of trends and events in finance, macroeconomics, politics, fashion, entertainment, demographics and other aspects of human social history.

The essence of Prechter’s socionomic hypothesis is that fluctuations in social mood—producing waves of optimism and pessimism—are a natural result of human association and have consequences in social action. Social mood is not conscious, rational and objectively reactive but unconscious, non-rational and subjectively active. While people almost universally believe that the character of social events determines social mood, socionomics recognizes that the causality is the reverse: Social mood determines the character of social events. The causality of social mood is unidirectional; there is no feedback loop of events back to social mood. Events do stimulate brief emotional reactions, but they are transient and do not affect social mood.

Some forums of activity are ideal for the immediate expression of social mood. The one for which the most detailed and pristine data exist is the stock market, where investors adjust aggregate stock prices almost immediately to express changes in social mood. Other qualities and activities, such as facial expressions, voice timbre, the music people choose to hear, the clothes they select to wear, and the entertainment they prefer, can serve as “sociometers” to the extent that accurate data are available.

Many actions taken in response to trends in social mood take time to manifest. For example, people who run businesses might decide, in expressing the social mood, to expand or contract operations. But it takes time to implement such plans, so changes in macroeconomic activity lag changes in social mood and the stock market. The same is true of political actions, which generally require a large consensus and thereby substantially lag mood and the stock market as well. This is why sociometers such as the stock market averages are leading indicators of macroeconomic trends and political actions.

Socionomic theory postulates that waves of social mood are endogenously regulated, fluctuating toward the “positive” and then the “negative” direction according to a patterned, hierarchical fractal called the Wave Principle, identified and developed as a stock market model by Ralph Nelson Elliott in the 1930s. Waves have substantial quantitative leeway but adhere to one overall form, under which there are five specific forms and a limited number of variations thereof, as described in the literature. Because Elliott waves are patterned, they are probabilistically predictable, thereby making the character of social trends probabilistically predictable as well.

Essential resources relating to socionomics:

Scholarly Papers

“The Financial/Economic Dichotomy in Social Behavioral Dynamics: The Socionomic Perspective,” by Prechter and Wayne D. Parker. Journal of Behavioral Finance, 2007.

“Social Mood, Stock Market Performance and U.S. Presidential Elections: A Socionomic Perspective on Voting Results,” by Prechter, Deepak Goel, Wayne D. Parker and Matthew Lampert. SAGE Open, 2012. It was SSRN’s third-most-downloaded paper in 2012.

Books

The Wave Principle of Human Social Behavior and the New Science of Socionomics (1999)

Pioneering Studies in Socionomics (2003)

The Socionomic Theory of Finance (2016)

Socionomic Studies of Society and Culture (2017)

Socionomic Causality in Politics (2017)

Videos

History’s Hidden Engine (2006)