|By Alan Hall, originally published in the September 2011 Socionomist|
While socionomic theory is relatively straightforward, applying it can be a challenge. Expressions of social mood vary in myriad ways, and often they are difficult to measure. Misapplying socionomics can lead not only to errors but also to misconceptions about the theory’s utility.
On the other hand, learning to apply the model properly can help you anticipate a social system’s tendencies as well as understand its past and present.
Let’s briefly review some sociometers and then examine the core ideas necessary to use them.
Sociometers Vary in Utility
There are no perfect sociometers. As Robert Prechter explained in “Sociometrics—Applying Socionomic Causality to Social Forecasting,” in the September 2004 issue of The Elliott Wave Theorist:
Sociometers are selective measures of certain types of social actions, not mood itself, and probably always will be. Therefore, unlike a thermometer, they are not perfect gauges of what they attempt to measure, which is the underlying social mood.1
Sociometers vary widely in utility because they differ in data quality, breadth of social expression, the relative speed at which the manifestation of mood becomes observable, and the extent to which they indicate the tenor (positive or negative direction) and character (specific traits such as optimism/pessimism) of social mood. Prechter wrote, “In every case, then, socionomic data are impure, inexact, relative and/or limited.”1
Stock indexes are the benchmark sociometers because they are broad in scope, contain plenty of clean data and rapidly reflect social mood. The cash stock markets are the best sociometers most of the time. Yet, even nominal equity indexes can be improved upon at times. Prechter explains,
Some sociometers are expressed as ratios. The DJIA, for instance, is commonly quoted in terms of dollars. One may also quote it in terms of gold or the PPI (which I often do) or anything else. Sometimes using multiple ratios provides more information. I am impressed, for example, how well the constant-dollar Dow has matched other expressions of social mood over the past half century. In other historical times, money and gold were equal or the money supply was constant, making choices among such graphs moot.1
As a socionomist, you must choose the most appropriate sociometer for the social environment you intend to measure.
When applying the theory, socionomists should keep the following key points in mind:
Social mood motivates social actions, not the other way around. People frequently apply the basic physics model of causality—action and reaction—to human affairs. In other words, they assume that external events “impact” society’s mood in the same way one billiard ball impacts another. Under the physics model, for example, recessions make businesspeople cautious, whereas socionomics argues the opposite: cautious businesspeople cause recessions. One must apply the counter-intuitive socionomic insight—that changes in social mood regulate changes in social expressions—to understand and use sociometers properly and conduct useful socionomic analysis. Prechter wrote,
I find myself upon occasion having to work hard at dispelling old contradictory thought patterns in order to re-establish mental integrity on the more difficult challenges of the socionomic insight. … The average person’s resistance to the socionomic insight is so formidable that it compares to having one’s view of existence challenged. I believe that the reason for this resistance is the easy naturalness of the idea of event causality: It works in physics, so people assume that it must operate in sociology. This deeply rooted assumption is stronger than piles of evidence to the contrary.2
Even practicing socionomists must fight the impulse to explain phenomena via backwards causality.
Socionomics is a tool for understanding the tendency of the social system, not a crystal ball for predicting specific events. Socionomic analysis can help provide a probabilistic assessment for the future of a complex, dynamic social system. It cannot tell you exactly which events will occur as a mood trend develops, but it can tell you the tenor and character they likely will express. For example, Chapter 14 of The Wave Principle of Human Social Behavior (1999) lists many of the categories of behaviors and the emotions that society tends to display in response to social mood. Here are a few examples:
- Concord/Discord: A rising mood leads to a substantial consensus in politics, culture and social vision; a falling mood leads to a divided, radical climate.
- Inclusion/Exclusion: A rising mood leads to expressions of social brotherhood and acceptance among races, religions and political territories … . A falling mood leads to apartheid, religious animosity, cavalier cruelty, secession [and] independence movements … .
- Confidence/Fear: A rising mood leads to speculation in the stock market and in business. A falling mood causes risk aversion in the stock market and in business.
Knowledge of the mood-driven tendencies of society, used in context, may clue you to the likelihood of specific events. For example, the October 2003 issue of The Elliott Wave Theorist attempted a number of specific forecasts based on the conjecture that a large-degree negative social mood trend was under way. Several of these predictions, quoted below, have already happened, and others are trending:
- Wave (a) of the bear market in social mood will bedevil more than one president.
- The U.S.will increase restrictions on immigration.
- Society will label the Federal Reserve chairman a fool who is greatly responsible for the collapse.
- Politics will become far more polarized, splintered and radical.
- The U.S.will shut down its space program.
- The Drug War will turn more violent. Eventually, society will decriminalize possession and sale of recreational drugs.
- The suicide rate will go up.
- The birth rate will continue to fall in the U.S. and Europe.
- Fannie Mae and Freddie Mac will shut down.
- Society will discredit and then abolish the Federal Reserve System.
As you can see, the proper application of socionomics enables you to envision specific events that may occur under certain mood states. It does not, however, say that those events must happen.
Socionomics is more than a theory of stock price fluctuation. The Elliott Wave Principle is a model for explaining stock price fluctuation based on changes in social mood. Socionomics is a broader theory that describes the relationship between social mood and many kinds of social action, including changes in how society values stocks. Stock indexes are useful tools when conducting socionomic analysis because they provide a quantified and nearly instantaneous measure of social mood.
Fringe social manifestations are less important than central ones. A basketball analogy is useful here. Coaches tell defending players to watch the belly button of offensive opponents. The idea is that by focusing on the center of mass, which moves the least, they are less likely to be fooled by head fakes, feints and limb or ball movements. A socionomist must watch society similarly. Soft sociometers, such as characteristics of fashion, music or movies, can offer valuable information, but the stock market is more precise.
The stock market and the economy are fundamentally different. Financial and economic behaviors have different motivations and produce different results. In the economic marketplace, the law of supply and demand in the context of opposing desires between producers and consumers produces price equilibrium. This same law is irrelevant in the financial context, where speculative buying and selling reigns, buyers and sellers frequently switch roles, and demand is uncertain and subject to herding. This produces wild and continuous price fluctuation. Prechter and Wayne Parker wrote in the Journal of Behavioral Finance,
If the law of supply and demand were regulating financial markets, prices and relative values for investments would be as stable as those for shoes and bread. … When certainty about personal valuation applies, people maximize utility and markets seek equilibrium. When uncertainty about others’ valuations applies, people herd and markets are dynamic.3
Socionomists must collect and compare data properly. Sociometers must be theoretically defensible. It is true that for some socionomic studies the lack of data can make it necessary to compare one country’s stock index to another’s production index. But where data are available, compare apples to apples.
Extreme expressions of social mood signal increased potential for trend change, not trend continuation. Investors tend to buy near market peaks and sell near lows because they are most aligned with the collective sentiment at the extremes. In financial markets, opinion convergence and sentiment extremes therefore tend not to presage trend continuation but rather imminent reversal. Likewise, other extreme social manifestations signal that a mood trend may have reached an extreme and is ripe for reversal.
There is a “relative temporal relationship between immediate social actions, which can constitute sociometers, and lagging social actions, which often constitute news.”1 Stock purchases tend to lead slower indicators of mood, such as economic indicators, war, legislation and the like, for the reasons described in Prechter’s explanation of varying lag times among different types of social activity.
Social mood is never completely positive or negative but always a mix. For example, when social mood turns down from a major top, everyone’s mood does not shift suddenly to the negative extreme. Rather, pessimism emerges and begins to increase within the mostly optimistic mix of social expression. The reverse is true at a bottom. The important item to watch is the aggregate trend of social mood’s predominant expressions.
The social mood trend waxes and wanes in the fractal pattern described by Elliott waves. So, depending on the sociometer, small-degree positive expressions of mood constantly occur within larger-degree negative trends and vice versa.
As socionomics continues to move from the stage of being ignored to that of being criticized, it becomes ever more important for those of us applying socionomics to do so consistently and properly. Among many examples of the theory’s utility is the November 1982 issue of The Elliott Wave Theorist (EWT), which forecast an asset mania: “The next few years will be profitable beyond your wildest imagination. … Tune your mind to 1924.”4 Conquer the Crash, Robert Prechter’s 2002 best-seller, contained many of the startling financial media stories that broke in 2007–2011. EWT also nailed the 2009 bottom in stocks. In all of those cases, socionomics also forecast the social climate that would result. The Socionomist has done likewise, forecasting moves toward drug legalization, a rise in secessionism and authoritarian conflict, widening rifts in the EU and Mideast violence.
Socionomics has demonstrated its value as a social forecasting tool, but as with any tool, the operator must understand it and use it correctly in order for it to be effective.■
1Prechter, R. (2004, September). Sociometrics—applying socionomic causality to social forecasting. The Elliott Wave Theorist, Retrieved from https://socionomics.net/2004/09/sociometrics-applying-socionomic-causality-to-social-forecasting.
2Prechter, R. (2003). Pioneering studies in socionomics.Gainesville,Georgia: New Classics Library. Chapter 26.
3Prechter, R., & Parker, W. (2007). The financial/economic dichotomy in social behavioral dynamics: the socionomic perspective. The Journal of Behavioral Finance, 8(2), Retrieved from https://secureservercdn.net/188.8.131.52/3d8.988.myftpupload.com/pdf/JBF_Financial-Economic-Dichotomy.pdf.
4Prechter, R. (1982, November). The Elliott Wave Theorist, 3.
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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.
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