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Robert R. Prechter, Jr. is known for developing a theory of social causality called socionomics, for developing a new theory of finance and for his long career applying and enhancing R.N. Elliott’s model of financial pricing called the Wave Principle.
Socionomics
Prechter has developed a theory of the causality of social action—called socionomics—which accounts for the character of trends and events in finance, macroeconomics, politics, fashion, entertainment, demographics and other aspects of human social history. His “socionomic hypothesis” is that social mood, which is endogenously regulated, is the primary driver of social action. Under development since the 1970s, this idea first reached a national audience in a 1985 cover article in Barron’s. Prechter has made presentations about socionomic theory at the London School of Economics, University of Cambridge, MIT, Georgia Tech, SUNY and various academic conferences. For a description of socionomic theory, click here. Essential publications relating to this aspect of Prechter’s work include:
Socionomics—the Science of History and Social Prediction, a two-book set comprising The Wave Principle of Human Social Behavior and the New Science of Socionomics (1999) and Pioneering Studies in Socionomics (2003).
History’s Hidden Engine (2006), David Edmond Moore’s documentary DVD using socionomics to explain changes in fashion, music, economics, politics and history.
Associated website: www.socionomics.net
Financial Theory
Prechter has developed a new theory of financial causality that proposes a fundamental separation between the fields of finance and economics. His Socionomic Theory of Finance (STF) opposes the Efficient Market Hypothesis (EMH), and his proposed Law of Patterned Herding (LPH) replaces attempts to apply the Law of Supply and Demand to financial markets. Prechter accepts that in the economic realm, the pricing of utilitarian goods and services is mostly conscious, rational and objective and that the Law of Supply and Demand leads to equilibrium-seeking in prices. But his STF proposes that in the financial realm, the pricing of investments is mostly unconscious, non-rational and subjective and that unfettered changes in demand produce unceasing dynamism in prices. A primary reason for the difference is that financial decisions involve pervasive uncertainty, which induces herding. Key publications relating to this aspect of Prechter’s work include:
“The Financial/Economic Dichotomy: A Socionomic Perspective” (2007), a paper by Prechter and Dr. Wayne Parker published in the summer 2007 issue of The Journal of Behavioral Finance.
Toward a New Science of Social Prediction: Robert Prechter at the London School of Economics (2009), a DVD that captures Prechter’s two-hour presentation on socionomics and financial theory to students and faculty at the London School of Economics in 2004.
Associated website: www.socionomics.org
The Wave Principle
Prechter is known for a long career in the development and application of the Wave Principle, an empirically derived model of financial pricing identified and described by Ralph Nelson Elliott in the 1930s. According to this model, financial market prices—especially aggregate stock market prices, which are particularly sensitive to changes in social mood—develop in a series of five “waves” in the direction of the immediately larger trend and in a series of three waves (or combination thereof) when moving contrary to the immediately larger trend, thereby producing a patterned, hierarchical fractal. This 5/3 construction leads naturally and efficiently to fluctuation at all scales, to trending at each “degree” of the hierarchy and to a tendency of price movements to form Fibonacci relationships. These waves take certain described forms called Elliott waves. This model is compatible with socionomics and Prechter’s theory of finance. Prechter has written/edited a dozen books on the Wave Principle, including the original works of R.N. Elliott and his successors. Essential publications relating to this aspect of Prechter’s work include:
Elliott Wave Principle (1978/1983), a description of the Wave Principle and a forecast for a great bull market.
Conquer the Crash (2002), an application of Elliott waves, associated technical indicators and the history of credit to forecast a period of financial, monetary and economic crisis.
Associated web page: www.elliottwave.com/books
Market Analysis and Forecasting
Prechter began applying the Wave Principle to financial markets in 1972. Each month, he writes The Elliott Wave Theorist and oversees the production of Global Market Perspective, a 100-page monthly analysis of all major markets around the world, written by analysts at Prechter’s firm, Elliott Wave International. His firm also provides monthly market publications covering the U.S., Europe and Asia; three-times-a-week Short Term Updates for each region; intraday analysis of the S&P and other markets; and specialty services for investors in currencies, metals, commodities and energy markets.
Associated website: www.elliottwave.com
Awards
Prechter won the U.S. Trading Championship in 1984 with a then-record 444% return in four months in a monitored, real-money options trading account. His publication, The Elliott Wave Theorist, won numerous speaking, timing and publishing awards during the 1980s, and in 1989, he was named “Guru of the Decade” by the Financial News Network (now CNBC). In 1999, Prechter received the Canadian Society of Technical Analysts’ inaugural A.J. Frost Memorial Award for Outstanding Contribution to the Development of Technical Analysis. In 2003, Traders Library granted him its Hall of Fame award.
Biography
Robert Prechter was born in 1949. He attended Yale University on a full scholarship and received a B.A. in psychology in 1971. After graduation, Bob played popular music for four years while studying technical analysis. In 1973-74, his band recorded an album, now on CD. In 1975, Prechter began his financial career by joining Merrill Lynch’s Market Analysis Department under the tutelage of Robert J. Farrell and in 1976 began issuing Elliott-wave analysis of the financial markets. In 1979, Prechter founded Elliott Wave International and began publishing monthly market analysis under the masthead, The Elliott Wave Theorist. Prechter served as a member of the board of the Market Technicians Association for nine years and as the MTA’s President in 1990-1991. He currently serves on the advisory board of the MTA’s Educational Foundation. Over the years, Prechter expanded his business and now employs a staff of analysts who apply the Wave Principle to all major markets around the world. Prechter recently created the Socionomics Institute, which is dedicated to explaining socionomics, and he funds the Socionomics Foundation, which supports academic research in the field. His book Elliott Wave Principle has been translated into a dozen languages, and Conquer the Crash was a New York Times bestseller. Prechter has made many speeches and media appearances around the world. In 2008 and 2010, the Georgia legislature invited Prechter to testify before its Joint Economic Committee regarding the state’s developing real estate and economic crises. In 2009, EWI’s book-publishing division, New Classics Library, published Lewis Little’s The Theory of Elementary Waves, which postulates a purely physical, and thus rational, theory of sub-atomic physics. Bob is a member of the Shakespeare Oxford Society, the Shakespeare Fellowship and the Triple Nine Society.
Associated web page: News: Hot off the Press CD, LP and digital downloads: http://yogarecords.com/artists/news