Socionomics: the study of social mood on economics and society.
In ye olden days, it was thought that people react to events, such as a rising or falling stock market. But socionomics thinks that, instead, people themselves are creating these events. So...things like the stock market, and what politicians do and say, is a reflection of social mood.
Socionomics first came to light via market analyst Robert Prechter with his Elliott Wave Principle in the 1970s. Under socionomics, an increase in ESG (environmental, social, and governance) investments shows an increase in consumer demand for more responsible investing. Likewise, the themes and narratives coming from politicians, movies, and TV shows are a reflection of the public’s current interests, desires, and fears.
Since stock markets can change at the drop of a hat, they’re often used in studying socionomics theories and trends. Prechter’s main schtick was this: sure, the efficient market hypothesis is a thing when there’s complete information...but in reality, there isn't complete information. Investors are unsure of what others will do and are working with asymmetric information, which creates dynamic waves and herd-like mentalities that produce larger macroeconomic trends.
Prechter’s Elliot Wave Principle proposes that natural fractal patterns can be seen in markets, and that they are inevitable. Just as inevitably as there are seasons in nature, Prechter believes in the inevitability of market booms and busts.
Related or Semi-related Video
Finance: What is Efficient Markets Theor...141 Views
Finance a la shmoop what is the efficient markets theory well
there should just be a big picture of Warren Buffett right here it should be [Two men carrying a framed picture of Warren Buffett]
the man Warren explaining the efficient market theory himself and that theory
states that it's impossible to beat the market over a sustained period of time
it should be Warren Buffett who explains that all relevant information comes [Warren Buffett giving a presentation on stage]
public in public stocks and that the market more or less immediately
incorporates all that information in its pricing
hence nobody can ever beat the market over a long period of time so why should [Men falling asleep during a presentation]
Warren Buffett be giving this little definition because the efficient market
theory is wrong Buffett has beaten the market for decades in a row in every way [Warren Buffett beating up the market with a stick]
shape and form so you have a really memorable huge figure in finance this
guy and then pipsqueak professors who are kind of a laughing stock whenever the [Professor jumping on the microphone stand trying to talk]
wealthy power crowds gather in Omaha for their National Convention that's what
they say at the Woodstock of Finance if you will fortunately most people keep [Man with arms folded standing naked in a corridor]
their clothes on for this one
Up Next
How does technology change market efficiency? Technology makes the market more efficient by giving investors the ability to execute trades in the m...