The Wave Principle of Human Social Behavior and the New Science of
Socionomics

Review of The Wave Principle of Human Social Behavior and the New Science of Socionomics

The medical professional tells us that regular vigorous exercise is an integral part of an overall healthy life style. Well, for those of us who can not run a four-minute mile, Bob Prechter's writings give us an opportunity to at least benefit from an invigorating mental workout.

This is the seventh book by Bob Prechter that I have reviewed, and with each new book I get a better appreciation of his message. He is like an evangelist who extols his audience to see and feel the word. Armed with intriguing sets of facts, examples and illustrations, he hammers away in an attempt to convert us to his way of thinking.

In Parts I, II and III of the book, Prechter presents his usual thorough treatment of Elliott Waves, Fibonacci math and fractals. In Part IV and V he shows how they are combined to form the foundation of socionomics. According to Prechter, this new science explains how collective human mood shapes most, if not all, human behavior. He presents convincing arguments that everything from stock market trends to baseball game attendance and the eventual fall of pop star Michael Jackson can be explained by socionomics theory. The book is a fascinating mixture of data, illustrations, photographs charts, and elegant prose about biology, psychology, economics, politics, culture and sociology.

Prechter is a deep thinker with a big message. For example, in Chapter 16: Historical Impulsion: Events that Result from Social Mood Trends he asserts, "Elliott waves, to state it directly, are the first cause of history." He is telling us that the course of human events unfolds in periods of patterned progress and regress.

Be sure to read Chapter 19: Problems with Conventional Approaches to Financial Markets, and Their Solution in Socionomics, my favorite chapter, in which Prechter debunks the popular concepts of Efficient Market Hypothesis and Random Walk Theory.

Whether you agree or not with everything Prechter presents, you will have to admit that he is thinking "grand" thoughts. And he is eager to promote his revolutionary concepts to the established community of professional and academic social scientists, who will critically evaluate his theories.

This thought-provoking book is a great read, and I am certain that studying it will stimulate your brain to add a few new cells (perhaps a Fibonacci number). And that is a good thing.

For much more about Elliott waves, read Elliott Wave Principle by A. J. Frost and Robert Prechter, Jr.

Also, be sure to view History's Hidden Engine, a free entertaining and informative video all about the Elliott Wave Principle and much more. Click here for a three-minute excerpt of the video.

Brief Summary of Each Chapter

If you are interested in knowing more about the contents of the book, here is a brief description of each chapter.

Part I: An Introduction to the Idea of the Wave Principle

Chapter 1: Basic Tenets of the Wave Principle describes how stock market prices move in patterns to form a structured progression. For a detailed analysis of the Wave Principle, see Elliott Wave Principle by A. J. Frost and Robert Prechter, Jr.

Chapter 2: Universal Forms: Fractals, Power Laws and Spirals in Self-Organizing Systems, and Their Connection to the Wave Principle includes many examples and illustrations of waves, fractals and spirals in plants, animals and financial markets.

In Chapter 3: Robust Fractals and Fibonacci Mathematics Prechter continues to analyze spirals, fractals and waves and concludes, "What the Wave Principle ultimately says, then, is that mankind's progress, which results from his social nature, does not occur in a straight line, does not occur randomly, and does not occur cyclically. Rather, progress takes place in a Fibonacci-related arborating, spiraling or wave-fractal style that nature uses for all its robust forms."

Part II: Validating the Wave Principle by its Own Operation

Chapter 4: Modeling and Quantification Support the Validity of the Wave Principle describes EWAVES, a computer program used to validate the Elliott Wave Principle.

Chapter 5: Forecasting Pattern on the Basis of Pattern, analyzes the efficacy of the Wave Principe as a forecasting tool for the direction of the broad stock market.

Chapter 6: Forecasting Price Extremes on the Basis of Typical Wave Relationships chronicles actual stock and bond price forecasts using Fibonacci relationships. See how Prechter made forecasts in real time.

Chapter 7: Relating Aspects of Market Behavior to Wave Degrees examines how rate of price change, investor sentiment, volume and breadth are related to wave degrees.

Part III: The Basis of the Wave Principle in Biology, Psychology and Sociology

Chapter 8: Unconscious Herding Behavior as the Psychological Basis of the Wave Principle tells us why group thinking often leads to bad (unprofitable) investing choices. Prechter states, "When a herd 'thinks', the result is not reason but an emotional interpersonal superorganic dynamic that must be the source of waves." Prechter continues with, "The resulting pattern of collective conduct apparently takes the form of the Wave Principle."

In Chapter 9: Theories and Observations Relating to Impulsivity and Herding Prechter reveals why people herd and concludes, ""Understanding that financial market behavior is governed by the patterned unconscious, then, is precisely what, for the first time ever, allows analysis of it to be objective." Prechter is telling us that our brains perceive patterns of thought.

Chapter 10: Biological Connections to the Robust Fractal Aspect of the Wave Principle describes the fractal nature of the human organs including the eye and brain. And Prechter speculates why the body employs fractals.

Chapter 11: Biological and Perceptual Connections to the Fibonacci Foundation of the Wave Principle shows the Fibonacci proportions of the human body. And he postulates that the human brain and nervous system have Fibonacci properties.

Chapter 12: Mentational Connections to the Fibonacci Foundation of the Wave Principle connects the findings of last three chapters to conclude that, "...the growth pattern of mankind has Fibonacci properties."

In Chapter 13: From Long Waves to Rapid Vibration: The Motor of Life? Prechter speculates that the Wave Principle might govern the pattern of progress of individuals as well as groups. He says, "I am inclined to postulate further that the Wave Principle governs the progress of all forms of life, not just societal systems."

Part IV: An Introduction to Socionomics

In Chapter 14: Components of Mood Prechter shares his thoughts and observations on what comprises social mood. He states up front that his thinking is still in the formative stage so many of his ideas are not conclusive.

Chapter 15: Popular Cultural Trends as Manifestations of Social Mood Trends shows how many popular cultural trends follow the broad stock market. Read how hem lines, pop music lyrical styles and adoration of pop music performers from Benny Goodman to Elvis to Michael Jackson coincide with the ups and downs of the stock market.

Chapter 16: Historical Impulsion: Events that Result from Social Mood Trends concludes with a very powerful assertion, "Elliott waves, to state it directly, are the first cause of history. Since waves are governed by mathematics, history has a mathematical basis. Since waves are governed by Fibonacci mathematics, then the mathematics with which nature is most intimate are behind the tenor and events of history."

Chapter 17: Forecasting Success Supports the Validity of Socionomics shows how socionomics can be used to make forecasts about a number of social phenomenon. For example, tobacco consumption by adults since 1900 is described by a classic Elliott wave advance and eventually downside. Even long-term baseball attendance numbers follows an Elliott wave pattern.

In Chapter 18: Thinking Socionomically, Prechter sums up the essence of Socionomics with, "While knowledge of current events and extramarket conditions has almost no value in predicting the stock market, knowledge about the position of the market can help predict changes in outside conations." I bet the talking heads at CNBC don't want to hear this!

Part V: Further Afield

Chapter 19: Problems with Conventional Approaches to Financial Markets, and Their Solution in Socionomics is my favorite chapter. Prechter is at his best as he systematically debunks the concepts of Efficient Market Hypothesis and Random Walk Theory. He argues point-by point against these well-known explanations of investor behavior and market fluctuations.

For me the key point of Chapter 20: Some Key Fundamentals of Socionomics is summed up in Prechter's statement, "The Wave Principle makes obsolete the idea that there is some kind of principle of inherent unpredictability in all complex systems. .... Forecasting is possible in any system that displays the Wave Principle."

He transitions our thoughts to the last chapter with, "The Wave Principle shows that form, not atomistic cause and effect, determines all social systems and perhaps all living systems."

The 36-word title of the last chapter is a candidate for the longest chapter title in the Guinness World Records: Chapter 21: The Kitchen Sink: Linking Physics to the Human Social Experience, A Principle Behind Ordered Complexity, Hints of Robust Fractals in the Heavens, the Fibonacci Foundation of Robust Forms, and Phimation as an Opposing Principle to Entropy. Here Prechter tells us his grand thoughts, as he speculates that the Wave Principle could be the unifying principle, that in the words of R.N. Elliott "governs all things."

Reviewed by Richard Howard. To read my reviews of other books by Bob Prechter, click here.

Posted February 2, 2007.

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