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The Financial/Economic Dichotomy in Social Behavioral Dynamics: The Socionomic Perspective

Journal of Behavioral Finance, Vol. 8, No. 2, pp. 84-108, Summer 2007

Posted: 2 Aug 2010 Last revised: 30 Aug 2011

Robert R. Prechter Jr.

Socionomics Institute

Wayne D. Parker

Emory University School of Medicine; Socionomics Foundation

Date Written: 2007

Abstract

Neoclassical economics does not offer a useful model of finance, because economic and financial behavior have different motivational dynamics. The law of supply and demand operates among rational valuers to produce equilibrium in the marketplace for utilitarian goods and services. The efficient market hypothesis (EMH) is a related model applied to financial markets. The socionomic theory of finance (STF) posits that contextual differences between economics and finance produce different behavior, so that in finance the law of supply and demand is irrelevant, and EMH is inappropriate. In finance, uncertainty about valuations by other homogeneous agents induces unconscious, non-rational herding, which follows endogenously regulated fluctuations in social mood, which in turn determine financial fluctuations. This dynamic produces non-mean-reverting dynamism in financial markets, not equilibrium.

Keywords: socionomic theory of finance, socionomics, herding, behavioral finance, efficient market hypothesis

JEL Classification: G1, D81

Suggested Citation

Prechter, Robert R. and Parker, Wayne D., The Financial/Economic Dichotomy in Social Behavioral Dynamics: The Socionomic Perspective (2007). Journal of Behavioral Finance, Vol. 8, No. 2, pp. 84-108, Summer 2007. Available at SSRN: https://ssrn.com/abstract=1495051

Robert R. Prechter Jr. (Contact Author)

Socionomics Institute ( email )

PO Box 1618
Gainesville, GA 30503
United States

HOME PAGE: http://www.socionomics.net/

Wayne D. Parker

Emory University School of Medicine ( email )

201 Dowman Drive
Atlanta, GA 30322
United States

Socionomics Foundation ( email )

200 Main Street, Suite 300
Gainesville, GA 30501
United States

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