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VIDEOThe Failure of Socionomics, Part 1
By
James Kostohryz
Aug 04, 2010 9:15 am
In the socionomics literature, the tendency to rely on arbitrarily selected anecdotes is proof of the futility of the theory.
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Socionomics starts from an intriguing premise. It states that social mood isn't the product of social phenomena; social phenomena are the product of social mood. Furthermore, the hypothesis states that fluctuations in social mood exhibit repetitive patterns that follow the Elliot Wave Principle, and are therefore predictable.
One implication of the socionomics hypothesis is that if one can correctly predict the tendency and tenor of social moods then one can predict the tendency and tenor of the stock markets and other areas of human endeavor such as fashion, music, politics, international relations, etc.
Socionomics has gained popularity for several reasons. First, the hypothesis is intriguing to many if for no other reason than the fact that it runs counter to conventional understandings and intuitions about the way the world works. Second, from an emotional point of view, the socionomics hypothesis, like other historicist ideas, satisfies a basic human longing to be able to find order and/or meaning in life events that often seem random or meaningless.
Over the years, I have been personally intrigued by the socionomics hypothesis; so much so that I have read a considerable amount of socionomics literature. I have also worked alongside highly skilled practitioners of this theory (particularly the Elliot Wave component) as applied to finance.
Nevertheless, in time, I've concluded that socionomics fails rather dramatically as a system of social analysis and prediction, and even more emphatically as a system of stock market analysis and prediction.
To understand why, I think it will be useful to analyze the article, Coming Soon: Bear Market TV, written by Robert Jay of Elliot Wave International. This article, although it focuses on the specific issue of popular television programming, is quite representative of the socionomics literature as a whole in its approach to sociological and stock market analysis. With all due respect, I would humbly submit that the article highlights some of the most important weaknesses in the socionomics paradigm.
Socionomics as a Means of Social Analysis
In the socionomics literature the notion of scientific empirical analysis of social phenomena isn't embraced; it's usually dismissed if and when the subject is broached at all. The alternative approach generally employed by the socionomics literature is the selective application of anecdote. This approach is well represented in Jay's article.
In this article, the author names a few TV programs and an isolated historical incident that presumably support his interpretation of the relationship between social mood cycles and stock market cycles. However, there's absolutely no attempt to empirically validate the author’s contentions through a more thorough statistical study of tendencies in television programming. In fact, not only are the social moods expressed through TV programs not specified or quantified in any way, the dates of the stock market and TV phenomena cited aren't even clearly cited. Admittedly, an empirical study of social mood as reflected in television programming and stock market performance would be a difficult undertaking. But it's also clear that cherry-picking a few anecdotes and dates cannot pass as good social analysis.
No positions in stocks mentioned.
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