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.
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, MIT, Georgia Tech, SUNY, University of Cambridge, University of Oxford, Trinity College Dublin and various academic conferences. For a description of socionomic theory, click here. Essential publications relating to this aspect of Prechter’s work include:
“Social Mood, Stock Market Performance and U.S. Presidential Elections: A Socionomic Perspective on Voting Results,” by Prechter, Deepak Goel, Wayne D. Parker, and Matthew Lampert was published by the peer-reviewed journal SAGE Open (2012). The paper posted to The Social Science Research Network (SSRN) in January 2012, where it became the third-most downloaded paper of the year. Click here to download.
Socionomics, 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).
Prechter at Oxford, Cambridge and Trinity: Offering a New View of Financial and Social Causality (2013), a DVD with Prechter presenting socionomic theory to faculty and students at the University of Oxford, University of Cambridge and Trinity College Dublin.
“A Literature Review of Social Mood”, by Kenneth R. Olson, was published by The Journal of Behavioral Finance (2006).
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
Notable articles/books that discuss Socionomics:
“I Know What You’ll Do Next Summer,” New Scientist, August 31, 2002, by John Casti.
Moods and Markets: A New Way to Invest in Good Times and in Bad (2012), by Peter Atwater.
Mood Matters: From Rising Skirt Lengths to the Collapse of World Powers (2010), by John Casti.
Ahead of Change: How Crowd Psychology and Cybernetics Transform the Way We Govern (2011), by Constantin Malik.
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)—which equates economic and financial markets—on ten major points. In brief, Prechter accepts that in the economic realm, because producers and consumers are knowledgeable of their own needs and desires, the pricing of utilitarian goods and services is mostly objective and motivated by conscious utility maximization; in this context the balance of desires (supply and demand) between heterogeneous groups of producers and consumers leads to equilibrium-seeking in prices. But his STF proposes that in the financial realm, because investors are ignorant of what other investors will do, the pricing of investments is mostly subjective and motivated by unconscious herding; in this context, unfettered changes in desire (demand) within a homogeneous group of investors produce unceasing dynamism in prices at all degrees of activity. In economics, substantial certainty about one’s own values induces mostly rational thought; in finance, substantial uncertainty about others’ values induces mostly non-rational herding. Prechter’s proposed Law of Patterned Herding (LPH) is that investors’ moods and their resulting decisions to buy and sell are regulated by waves of optimism and pessimism that fluctuate according to a fractal model called the Wave Principle (the Elliott Wave Model). Prices of goods and services are important because they regulate supply and demand. But prices of investments are irrelevant because they are merely a transient byproduct of mood-induced impulses to buy and sell. 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
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.
Robert Prechter was born in 1949. He attended Yale University on a full scholarship and received a B.A. in psychology in 1971. Bob was a professional musician for four years, and 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. Prechter’s articles on the Shakespeare authorship question have been published in four journals and newsletters. Bob is a member of the Shakespeare Oxford Society, the Shakespeare Fellowship and the Triple Nine Society.