Why Do Incumbent Presidents Lose?

Because social mood turned negative — not because of the economy. According to socionomic research by Prechter, Goel, Parker, and Lampert, incumbent presidents lose re-election when social mood has been trending negative during their term. The researchers found that “voters unconsciously (and erroneously) credit incumbents for their positive moods and blame incumbents for their negative moods” — and that “the policies of the incumbent and his challenger are irrelevant to this dynamic.”

The stock market, as a real-time indicator of social mood, predicted incumbent vote margins more accurately than GDP, inflation, or unemployment.

Based on: Prechter, R. R., Jr., Goel, D., Parker, W. D., & Lampert, M. (2012). “Social Mood, Stock Market Performance and U.S. Presidential Elections: A Socionomic Perspective on Voting Results.” SAGE Open. Read the complete study on SSRN →

The Conventional Explanation — and Why It Falls Short

The standard political science explanation for why incumbents lose is “economic voting” — voters rationally evaluate the economy and punish leaders who preside over bad times. The authors describe the assumptions behind this model:

Many political scientists hypothesize that changes in economic variables cause changes in other social variables such as stock market trends, public mood and voting results.

— Prechter et al. (2012), p. 4

Under this model, voters are assumed to be making a conscious, rational assessment:

Voters act consciously and rationally after logically evaluating candidates’ political policies and deciding whether these policies have served (under the theory of retrospective voting) or will serve (under the theory of prospective voting) their best interests.

— Prechter et al. (2012), p. 7

But the data don’t support this model. When the researchers tested the “big three” economic variables that political scientists have traditionally relied on, the results were stark:

We find no significant relationships between the incumbent’s vote margin and inflation or unemployment. GDP is a significant predictor of the incumbent’s popular vote margin in simple regression but is rendered insignificant when combined with the stock market in multiple regression.

— Prechter et al. (2012), Abstract

If incumbents lost because of bad economic conditions, you would expect GDP, inflation, and unemployment to be strong predictors of re-election outcomes. They are not.

The Socionomic Explanation: Mood Drives the Outcome

Socionomic theory offers a fundamentally different answer. Incumbents don’t lose because the economy is bad. They lose because social mood has turned negative — and negative mood produces both a bad economy and a desire to reject the leader:

Prechter (1989, 1999, 2003) hypothesized that when social mood has been trending towards optimism, voters will be more inclined to desire to keep the incumbent in office; and when social mood has been trending towards pessimism, voters will be more inclined to desire a change from the incumbent.

— Prechter et al. (2012), p. 8

The mechanism is unconscious — voters are not making a deliberate judgment about the incumbent’s performance. They are expressing a mood state and mistakenly attributing it to the leader:

Prechter (1999, 2003) proposed that the policies of the incumbent and his challenger are irrelevant to this dynamic. He surmised that voters unconsciously (and erroneously) credit incumbents for their positive moods and blame incumbents for their negative moods.

— Prechter et al. (2012), p. 8

This is a sharp departure from conventional political science. The authors draw a clear distinction between the socionomic model and the “responsibility hypothesis” in which voters consciously blame incumbents for perceived economic failure:

This explanation appears similar to the responsibility hypothesis (Downs, 1957; Key, 1966), in which voters blame the incumbent for consciously perceived, externally produced, negative economic circumstances. In the socionomic formulation, however, voters blame the incumbent for unconsciously experienced, internally regulated, negative social mood.

— Prechter et al. (2012), p. 8

Unconscious Attribution of Mood to Leaders
Under socionomic theory, voters do not rationally evaluate an incumbent’s performance and then decide how to vote. Instead, voters experience social mood — a shared, unconscious emotional state — and then unconsciously credit or blame the incumbent for that mood. When mood is positive, voters re-elect the leader. When mood is negative, they reject the leader. The leader’s actual policies and actions are proposed to be irrelevant to this process.

— Derived from Prechter (1999, 2003) as cited in Prechter et al. (2012)

The Evidence: The Stock Market Predicts Who Loses

Because the stock market reflects social mood faster than any economic indicator, the researchers used it as a proxy for mood. They examined all 26 U.S. presidential re-election bids from 1824 through 2004 and found:

Generally, incumbents who preside over a net advance in the stock market tend to obtain a higher vote margin than incumbents who preside over a net decline in the stock market in the one, two, three and four years before the election. Of all the variations we test, the relationship between the three-year net percentage change in the DJIA and the incumbent’s popular vote margin is the strongest and achieves the highest level of significance.

— Prechter et al. (2012), Discussion, p. 30

The three-year stock market change predicted incumbent vote margins with R² = 0.328 and p = 0.001. When they tested economic variables in multiple regression alongside the stock market, the results were unambiguous:

In a large number of analyses, the DJIA remains the only significant predictor of election outcomes when combined with nominal GDP, real GDP and/or the inflation rate. With popular vote margin as the criterion, none of eleven combinations of various independent variables registers as a significant predictor; the DJIA remains a significant predictor in all such combinations.

— Prechter et al. (2012), p. 29

The pattern was especially clear in landslide losses. Large stock market declines were strongly associated with landslide defeats for incumbents, with a 93% classification accuracy (Fisher’s exact test, p = 0.009).

Voters Blame the Leader, Not the Party

If incumbents lost because of economic performance or party-level governance, you would expect the stock market relationship to extend to the incumbent’s party when the incumbent doesn’t run. It doesn’t:

The significant relationships between stock market changes and election results do not extend to the incumbent’s party during elections that feature no incumbent candidate. This difference suggests that voting behavior changes depending upon whether the election includes an incumbent.

— Prechter et al. (2012), Discussion, p. 31

When the incumbent’s party ran a different candidate, the correlation was essentially zero (β = 0.064, p = 0.821). The authors’ interpretation: “We are inclined to hypothesize that voters project their moods upon individual leaders, not parties.”

This finding is difficult to explain under any version of economic voting theory. But it follows directly from the socionomic model: voters unconsciously project their mood onto whichever individual occupies the leadership role. No incumbent, no target for that projection.

It’s Not About Stockholders Voting Their Pocketbook

Could the results simply mean that people who lost money in the stock market voted against the incumbent? The authors addressed this directly:

The grateful (or ungrateful) stockholder explanation seems untenable given that the data for GDP, PPI and unemployment fail to support egotropic hypotheses of “grateful economic participants,” “grateful savers” or “grateful employees.” This problem for such an explanation seems doubly serious given that economic participants, savers and employees have always outnumbered stockholders, usually substantially.

— Prechter et al. (2012), p. 32

There’s also a historical test. Stock ownership in the U.S. went from negligible before 1900 to over 50% of households by 2005. If stockholders were driving the result, the relationship should be far stronger in modern elections. But the data show the opposite: “the association between election outcomes and stock market performance is stronger in the pre-1900 period than the post-1900 period, though both are significant.”

The conclusion:

Voters in the aggregate are not responding to stock market changes, economic changes, inflation rates or the availability of jobs; nor are they voting rationally for social improvement. Rather, they are voting in accordance with trends in social mood. An increasingly positive social mood produces a rising stock market as well as votes for the incumbent, and an increasingly negative social mood produces a falling stock market as well as votes against the incumbent, thus producing the positive relationship we observe.

— Prechter et al. (2012), p. 33

What This Means in Practice

The authors drew a practical implication from their findings:

Whenever one of a party’s potential candidates is an incumbent who has served during a period of major mood setback as indicated by a large net decline in the stock market — in real or nominal terms — that party may increase its chance of retaining control of the presidency if it chooses to nominate a candidate other than the incumbent.

— Prechter et al. (2012), p. 35

In other words: if social mood has turned against you, the smartest move may be to step aside and let someone who isn’t the target of voters’ unconscious blame run instead.

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