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Originally published under the title “Science is Revealing the Mechanism of the Wave Principle”

This essay by Robert R. Prechter, Jr. originally appeared in The Elliott Wave Theorist in August 1999 and was republished in the MTA Journal, Summer-Fall 2000. It was reprinted in:

Prechter, Robert R. (2003). Pioneering Studies in Socionomics. Gainesville, Georgia: New Classics Library, pp. 294-308 (Note: The book is also available for purchase as part of a two-volume set.)

Discoveries in the biological and behavioral sciences suggest that an unconscious herding impulse with Fibonacci-related tendencies drives certain human actions, including financial decisions.

Robert Prechter explains that the human unconscious is thus disposed toward patterns of behavior that reflect the Wave Principle.

Over a lifetime of work, Paul MacLean, former head of the Laboratory for Brain Evolution at the National Institute of Mental Health, has developed a mass of evidence supporting the concept of a “triune” brain, i.e., one that is divided into three basic parts. The primitive brain stem, called the basal ganglia, which we share with animal forms as low as reptiles, controls impulses essential to survival. The limbic system, which we share with mammals, controls emotions. The neocortex, which is significantly developed only in humans, is the seat of reason. …

The basal ganglia control brain functions that are often termed instinctive: the desire for security, the reaction to fear, the desire to acquire, the desire for pleasure, fighting, fleeing, territorialism, migration, hoarding, grooming, choosing a mate, breeding, the establishment of social hierarchy and the selection of leaders. More pertinent to our discussion, this bunch of nerves also controls coordinated behavior such as flocking, schooling and herding. … Portions of the brain are “hardwired for certain emotional and physical patterns of reaction” to insure survival of the species. … As one of its primitive tools of survival, then, emotional impulses from the limbic system impel a desire among individuals to seek signals from others in matters of knowledge and behavior and therefore to align their feelings and convictions with those of the group.

There is not only a physical distinction between the neocortex and the primitive brain but a functional dissociation between them. The intellect of the neocortex and the emotional mentation of the limbic system are so independent that “the limbic system has the capacity to generate out-of-context, affective feelings of conviction that we attach to our beliefs regardless of whether they are true or false.” Feelings of certainty can be so overwhelming that they stand fast in the face of logic and contradiction. They can attach themselves to a political doctrine, a social plan, the verity of a religion, the surety of winning on the next spin of the roulette wheel, the presumed path of a financial market or any other idea. This tendency is so powerful that Robert Thatcher, a neuroscientist at the University of South Florida College of Medicine in Tampa, says, “The limbic system is where we live, and the cortex is basically a slave to that.” While this may be an overstatement, a soft version of that depiction, which appears to be a minimum statement of the facts, is that most people live in the limbic system with respect to fields of knowledge and activity about which they lack either expertise or wisdom.

This tendency is marked in financial markets, where most people feel lost and buffeted by forces that they cannot control or foresee. In the 1920s, Cambridge economist A.C. Pigou connected cooperative social dynamics to booms and depression. His idea is that individuals routinely correct their own errors of thought when operating alone but abdicate their responsibility to do so in matters that have strong social agreement, regardless of the egregiousness of the ideational error. …


Continue reading this eight-page report to discover more scientific evidence of herding behavior amongst stock market participants, and why this herding behavior is counterproductive to success in the world of modern financial speculation. Learn how unconscious mental processes such as the herding impulse are patterned according to Fibonacci ratios.

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