|Excerpted from an in-depth interview with Robert R. Prechter, Jr., founder of the Socionomics Institute, by Mark Almand, the Institute’s director.|
MA: You have a new publication about socionomics (The Socionomist, which launched in 2009). Two academics have released books about your social mood theory, including the prominent John Casti (Mood Matters). You have presented your ideas at the University of Cambridge, MIT, Georgia Tech and the Univeristy of Oxford, among other venues, and the reception has been positive from both students and faculty. You released a DVD of your presentation at the London School of Economics. Two staff members have taught university classes. The first-ever Socionomics Summit will be held in Atlanta in April, and the institute has its first research fellow, Matt Lampert at the University of Cambridge. The science is beginning to attract regular coverage in the media. Socionomics seems to be gathering steam.
R.P.: I always feel that it’s taking too long for people to discover socionomics. But when I review the latest developments, I realize that progress is coming along nicely. So thanks for the reminder.
For the benefit of new readers, how about a capsule definition of socionomics?
Socionomics is the study of actions that result from changes in social mood.
What’s the hardest thing for most newcomers to grasp?
That social mood motivates social actions instead of the other way around.
Can you give me an example of how this causality works?
There are millions. Here is one. Most people think that recessions make businesspeople cautious. Socionomics says the opposite: Cautious businesspeople make recessions. So, the mood is the cause, and the event is the result.
Why is this insight important? I mean, what can it do for people?
Start with the above example. If you grasp that social mood is what moves the economy, and you can measure mood, then you can identify when and where recessions are most likely to occur. You can get out of the way.
And socionomics says that you can measure mood via the stock market?
Yes. For a variety of reasons, the stock market is an excellent meter of society’s mood. People can act on their moods almost immediately by buying or selling stock. But decisions they might make at the same time to expand or contract a business, or to draft a peace treaty or mobilize for war, take time to effect. So there is a lag. This is why the stock market predicts the character of news, not the other way around…. I watched the stock market confound fundamental analysts time and again. It became even more obvious to me that news lagged prices, not the other way around. So I became completely committed to the idea that the market moves independently of outside events. To this day I cannot understand stock analysts who talk about the supposed effect of elections, the Fed, interest rates, economic news and social events. These events have no predictive value as far as the stock market is concerned, at least not in the way most people read the news.
What’s the best way to read the news?
A socionomist reads the news completely differently from everyone else. For example, when we read that some think tank has predicted rising energy prices for the next decade, we figure that energy prices are probably near a top. When we read that economists are in agreement that a recession is in force, we see it as evidence that stock prices are near a bottom. And so on. As you can see, this is the opposite of the way most people read the news. When news stories cluster or sound extreme, they can have predictive value, in the opposite direction.
Why is that?
Because news lags mood trends. By the time events have reflected a positive or negative mood trend fully, that trend is about to reverse.
Were you a pure socionomist from the start?
No. Socionomics is deeply counter-intuitive. I had to go through a long process of weeding out misconceptions from my mind that had taken root there long ago. An early example was the idea that interest rates buffet the stock market. There are people who make a living on this idea. Economists are sure it’s true. My colleagues were convinced of it. It makes sense. It’s also quite wrong. If someone told you the course of interest rates in advance, you couldn’t predict stock prices. The stock market moves on waves of social mood. If you know that, you know more than the person who knows where interest rates are going. And, of course, no one knows where interest rates are going. Except that sometimes socionomists do know, because we study the history of waves and their attending social attributes.
Not quite, [but] larger trends are completely independent of exogenous cause.
Has anyone ever shared an “aha moment” of their own regarding socionomics with you?
Other people have done some excellent supportive studies. Pete Kendall showed how the sport of basketball has grown and contracted in concert with social mood, and he has linked the outbreak of fighting in the Middle East with worldwide social mood peaks. Working from a suggestion from Pete Kendall, Professors John Nofsinger and Kenneth Kim demonstrated a strong relationship between stock market trends and the timing of when the government adds and removes regulations on investing. Mark Galasiewski connected stock market trends to the popularity of automobile colors; DuPont included it in its annual Automotive Color Popularity Report, and Radar magazine wrote it up. Euan Wilson’s article showed how prohibition was linked to the stock market. Alan Hall published socionomic studies on the impact of social mood on epidemics and authoritarianism. And Brian Whitmer used socionomics to predict the Greek debt crisis. There must be three dozen such contributions ranging on diverse topics from terrorism and eugenics to music and fashion.
Where do you see the science heading next?
We need to test all our ideas rigorously. We are doing so little by little. The Socionomics Foundation offers grants to interested academics. I would like to see departments of socionomics in universities. The demand is growing, and some universities now include socionomics in certain classes. So it is beginning to happen.
Socionomist is a monthly online magazine designed to help
readers see and capitalize on the waves of social mood that contantly occur
throughout the world. It is published by the Socionomics
Institute, Robert R. Prechter, president; Matt Lampert, editor-in-chief;
Alyssa Hayden, editor; Alan Hall and Chuck Thompson, staff writers; Dave Allman
and Pete Kendall, editorial direction; Chuck Thompson, production; Ben Hall,
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Most economists, historians and sociologists
presume that events determine society’s mood. But socionomics hypothesizes
the opposite: that social mood regulates the character of social events. The
events of history—such as investment booms and busts, political events,
macroeconomic trends and even peace and war—are the products of a naturally
occurring pattern of social-mood fluctuation. Such events, therefore, are not
randomly distributed, as is commonly believed, but are in fact probabilistically
predictable. Socionomics also posits that the stock market is the best available
meter of a society’s aggregate mood, that news is irrelevant to social
mood, and that financial and economic decision-making are fundamentally different
in that financial decisions are motivated by the herding impulse while economic
choices are guided by supply and demand. For more information about socionomic
theory, see (1) the text, The
Wave Principle of Human Social Behavior © 1999, by Robert Prechter;
(2) the introductory documentary History's
Hidden Engine; (3) the video Toward
a New Science of Social Prediction, Prechter’s 2004 speech before
the London School of Economics in which he presents evidence to support his
socionomic hypothesis; and (4) the Socionomics Institute’s website, www.socionomics.net.
At no time will the Socionomics Institute make specific recommendations about
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