|By Alan Hall | Excerpted from the August 2012 Socionomist
Originally published in the under the title, “Social Mood Impels Feelings of Certainty and Uncertainty”
[Ed: In this fascinating article, Alan Hall explains that while the future is equally uncertain at all times, people perceive the future to be less certain during times of increasing negative social mood. Here is an excerpt of the article.]
Over the years, researchers have developed hard evidence that allows us to link changes in the volume of expressions of uncertainty with bull and bear markets. Let’s begin by looking at several uncertainty indexes.
1. Measuring Economic Policy Uncertainty
Economists Scott R. Baker, Nicholas Bloom and Steven J. Davis developed their Index of Economic Policy Uncertainty in their February 2012 paper, “Measuring Economic Policy Uncertainty.” The authors used three measures to construct their index: (1) newspaper coverage of economic policy, (2) the number of federal tax code provisions set to expire, and (3) what they refer to as “disagreement among economic forecasters.”
Figure 1 plots the monthly Inflation-Adjusted Dow against the authors’ index. … This index has reflected fear and uncertainty in the past, as its largest declines prior to 2000-2012 occurred in the bear markets of 1929-1932 and 1966-1980 (not shown).
Note that social mood creates a major division on this chart at the Dow/PPI peak in January 2000. Now observe that just a few months prior, the uncertainty index reached its second-lowest level in nearly three decades. Note also that most of the significant peaks in the uncertainty data correspond to significant lows in the Dow/PPI. And finally, note that the overall negative social mood trend since 1999 has accompanied increasing expressions of uncertainty. …
In this five-page article, Author Alan Hall presents compelling data from multiple studies to show the true cause of feelings like uncertainty and fear. That is, negative social mood.
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Most economists, historians and sociologists
presume that events determine society’s mood. But socionomics hypothesizes
the opposite: that social mood determines the character of social events. The
events of history—such as investment booms and busts, political events,
macroeconomic trends and even peace and war—are the products of a naturally
occurring pattern of social-mood fluctuation. Such events, therefore, are not
randomly distributed, as is commonly believed, but are in fact probabilistically
predictable. Socionomics also posits that the stock market is the best available
meter of a society’s aggregate mood, that news is irrelevant to social
mood, and that financial and economic decision-making are fundamentally different
in that financial decisions are motivated by the herding impulse while economic
choices are guided by supply and demand. For more information about socionomic
theory, see (1) the text, The
Wave Principle of Human Social Behavior © 1999, by Robert Prechter;
(2) the introductory documentary History's
Hidden Engine; (3) the video Toward
a New Science of Social Prediction, Prechter’s 2004 speech before
the London School of Economics in which he presents evidence to support his
socionomic hypothesis; and (4) the Socionomics Institute’s website, www.socionomics.net.
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