 By Alan Hall, originally published in the April 2011 Socionomist |
The Well-Being Index Aims to Measure Mood
The January 2011 issue of The Socionomist reported on studies of Twitter posts and Livejournal.com blog posts, two communication platforms that show potential as social mood meters. These social media interactions may reflect social mood even faster than the stock market does, potentially taking us one step closer to Robert Prechter’s definition of an ideal sociometer: an indicator that would “directly record aggregated mood changes in peoples’ minds” with no lag time.1
This issue, we look at another potential sociometer, the Gallup-Healthways Well-Being Index, in existence since 2008. It also seems to reflect aspects of social mood and may be useful to longer-term investors and others.
Dueling Mood Meters: The top line shows social mood as reflected by the Dow Jones Industrial Average. The bottom line graphs the Well-Being Index,
How it Works
According to its inventors, the Well-Being Index “tracks the well-being of U.S. residents 350 days out of the year, interviewing no fewer than 1,000 adults nationwide each day.”2 To gather the data, live interviewers telephone “randomly sampled respondents aged 18 and older, including cell phone users and Spanish-speaking respondents from all 50 states and the District of Columbia.” They ask a “series of questions that relate to experiences of positive and negative emotions, including feelings of enjoyment, happiness, stress, and anger” during the past 24 hours.3
The graph on page 10 shows that in some cases the Well-Being Index acts similarly to a momentum indicator in that it diverges at turns. We indicate five such divergences on the chart with trend lines. In the first four cases, the Well-Being Index foreshadowed a trend change in the DJIA. The red trend lines mark the two largest divergences. The first of these occurred when the Well-Being Index had already bottomed in late December 2008; the DJIA continued its descent for about three more months until its early March 2009 low. The second big divergence started in November 2010, when the DJIA made a new high unaccompanied by the Well-Being Index. It may signal a coming downturn in stock prices.
The Cons
First, let’s look at the weak points of the Well-Being Index as a sociometer: (1) It is relatively new; it begins in January 2008. We could better assess its socionomic value if it began prior to the 2007 social mood peak.
(2) The index polls mood on a daily basis but is calculated only monthly. A daily index would offer more accuracy. (3) It is relatively narrow in scope, polling only a small (1,000-person), random segment of the population each day. (4) Poll responses record how people consciously say they feel, which would not be as reliable as actions motivated naturally by unconscious social mood.
The Pros
On the positive side: (1) The random polling of the index may better represent the general population than do most market-specific measures. (2) Other polls—such as the Conference Board Consumer Confidence Index (CCI), various polls of trader sentiment and polls of Presidential approval—have proved to be valuable sociometers. For example, the CCI hit an all-time high in January 2000 and an all-time low in February 2009, in near-perfect harmony with stock prices. It also failed to accompany stocks to a new high in October 2007, which signaled a divergence and warned of the potential for the coming stock-market downturn.
(3) There is a statistically significant (p<0.00013) 58 % correlation between this “mood” graph and the DJIA, suggesting that they record something similar. (4) Finally, the Well-Being Index includes the March 2009 low in the stock market, which was a significant turning point in social mood.
The Verdict
If the most recent divergence shown in our chart indeed foreshadows the end of the two-year stock rally, the Well-Being Index will become much more interesting to socionomists and investors. Individuals might use its component data to their advantage to decide where to live or when and where to invest. It also might be useful to identify stress levels in large populations and subgroups to estimate the probability for disease outbreak or civil unrest.
Other countries, such as France and the U.K., are clamoring for their own well-being indexes. Canada already has one. Governments hope that if they can measure the satisfaction of their citizens, they can control and manage it. In the U.K., Prime Minister David Cameron says he wants an index “so we can create a climate in this country that is more family-friendly and more conducive to the good life.”4
The strategy behind the Well-Being Index, however, is based on assumptions similar to those behind the school-testing scheme we described in our February 2011 education study. Both efforts presuppose a “crusading confidence that data—derived from testing—can tell us all we need to know not just about what’s wrong with failing schools [or society], but how to fix them.”5
We believe that governments’ hope to manage social mood is futile. Governments already have functional “well-being” indexes in the Consumer Sentiment Index, the Misery Index and the stock markets. And the past decade has clearly demonstrated that authorities have no power to control social psychology, which is endogenously driven by unconscious social mood.■
CITATIONS
1Prechter, R. (2004, September). Sociometrics — applying socionomic causality to social forecasting. The Elliott Wave Theorist.
2Healthways fact sheet. (2008). Retrieved from http://wellbeing.healthways.com/factSheet.aspx
3Gallup-healthways well-being™ index: methodology report for indexes. (2009). Retrieved from http://www.well-beingindex.com/files/Gallup-Healthways%20Index%20Methodology%20Report%20FINAL%203-25-08.pdf
4Norman, L. (2010, November 25). Cameron to announce new index to measure well-being . The Wall Street Journal, Retrieved from http://online.wsj.com/article/SB10001424052748703572404575634774257869234.html
5Mosle, S. (2010, March 11). Facing up to our ignorance. Slate, Retrieved from http://www.slate.com/id/2247300/
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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
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The Socionomist enables you to see trend-shaping waves of social mood, as reflected by the stock market — and capitalize on them. The June issue looks at phases of social mood and features a “Research Roundup,” which highlights five academic studies that shine a light on important aspects of socionomic theory. Mood Riffs topics include “quiet luxury,” loneliness, the Writers Guild strike and efforts by countries to trade in currencies other than the U.S. dollar. Read the June issue when you become a Socionomics Premier Member.
