The Socionomic Theory of Finance

  • Format: Book | 800 pages
  • Author: Robert Prechter

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From the jacket:

Bob Prechter Socionomic Theory of Finance back cover photoThe Socionomic Theory of Finance

The socionomic theory of finance (STF) proposes that economic and financial markets are fundamentally different from each other. The differences manifest at both the individual and aggregate levels and arise from the opposing contexts of relative certainty in the economic marketplace vs. pervasive uncertainty in the financial marketplace. In economic markets, producers and consumers, due to knowledge of their own values, consciously apply reason to decision making. This results in exogenously motivated objective pricing. In financial markets, speculators, due to ignorance of others' future actions, unconsciously apply herding impulses to decision-making. This results in endogenously motivated subjective pricing.

The opposing motivations of producers and consumers cause economic markets to tend toward equilibrium, mean reversion and price stability, in a process regulated at the individual level by utility maximization and at the aggregate level by the laws of supply and demand. The unopposed motivations of speculators cause financial markets to tend toward dynamism in a process regulated at the individual level by spontaneous commands and at the aggregate level by the law of patterned herding. The pricing model for economic markets is the random walk. The pricing model for financial markets is a hierarchical fractal called the Wave Principle, described in the Elliott wave model. Neoclassical economic theory and, in finance, the efficient market hypothesis fail to discern all of these distinctions and inappropriately apply laws of economic causality to finance. STF is not a partial challenge to conventional formulations but rather is diametrically opposed to them in every major particular. STF aims to be both theoretically consistent and compatible with empirics.

Meet Your Author

Robert Prechter

Robert Prechter

Robert R. Prechter is known for developing a theory of social causality called socionomics, which he has elucidated in books and academic papers. In 1979, he founded Elliott Wave International, where he and his colleagues have applied and expanded upon R.N. Elliott's fractal model of financial pricing. Prechter graduated from Yale University. For more, visit

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