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Socionomics--mass consciousness

Thread ID: 10452 | Posts: 2 | Started: 2003-10-13

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travis [OP]

2003-10-13 12:00 | User Profile

I thought this short article provided some useful insight into the Jewish media's power to suck billions out of the pockets of gentiles without even breaking any laws.

[url]http://www.socionomics.org/what_is/what_is_herding_psychology.aspx[/url]

Herding Psychology and Financial Markets

As a primitive tool of survival, 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. The desire to belong to and be accepted by the group is particularly powerful in intensely emotional social settings, when it can overwhelm the higher brain functions.

The less that reality intrudes on the thinking of a group, the stronger is its collective conformity. Dependence most easily substitutes for rigorous reasoning when knowledge is lacking or logic irrelevant. In a realm such as investing, where so few are knowledgeable, or in a realm such as fads and fashion, where logic is inappropriate and the whole point is to impress other people, the tendency toward dependence is pervasive.

Trends in such activities are steered not by the rational decisions of individual minds but by the peculiar collective sensibilities of the herd.

In the 1920s, Cambridge economist A.C. Pigou connected cooperative social dynamics to booms and depression.16 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. In the realm of finance, as R.N. Elliott phrased it, Pigou maintained “that an error of optimism tends to create, throughout the community, a certain measure of psychological interdependence until it leads to crisis. Then the error of optimism dies and gives birth to an error of pessimism.”17 In Pigou’s words, "Apart altogether from the financial ties by which different businessmen are bound together, there exists among them a certain measure of psychological interdependence. A change of tone in one part of the business world diffuses itself, in a quite unreasoning manner, over other and wholly disconnected parts."18

“Wall Street” certainly shares aspects of a crowd, and there is abundant evidence that herding behavior exists among stock market participants. Myriad measures of market optimism and pessimism19 show that in the aggregate, such sentiments among both the public and financial professionals wax and wane concurrently with the trend and level of the market. This tendency is not simply fairly common; it is ubiquitous. Most people get virtually all of their ideas about financial markets from other people, through newspapers, television, tipsters and analysts, without checking a thing. They think, “Who am I to check? These other people are supposed to be experts.” Many people are emotionally dependent upon the ticker tape, which simply reports the aggregate short-term decision-making of others. This dependence is nearly universal, even among long-term investors. Financial markets induce a form of hypnosis in most people. Outwardly, they appear rational. Inside, their unconscious is in control. They are driven to follow the herd because they do not have firsthand knowledge adequate to form an independent conviction, which makes them seek wisdom in numbers.

The unconscious says: You have too little basis upon which to exercise reason; your only alternative is to assume that the herd knows where it’s going.

In 1987, Smith, Suchanek and Williams from the University of Arizona and Indiana University conducted sixty laboratory market simulations using as few as a dozen volunteers, typically economics students but also, in some experiments, professional businessmen.

Despite giving all the participants the same perfect knowledge of coming dividend prospects and then an actual declared dividend at the end of the simulated trading day, which could vary more or less randomly but which would average a certain amount, the subjects in these experiments repeatedly created a boom-and-bust market profile. The extremity of that profile was a function of the participants’ lack of experience in the speculative arena. Head research economist and 2002 Nobel Prize winner Vernon L. Smith came to this conclusion: “Experienced subjects frequently produce a market bubble, but the likelihood is smaller than for inexperienced subjects. When the same group returns for a third market, the bubble disappears.”20 In the real world, “these bubbles and crashes would be a lot less likely if the same traders were in the market all the time,”21 but novices are always entering the market.

While these experiments were conducted as if participants could actually possess true knowledge of coming events and so-called fundamental value, no such knowledge is available in the real world. The fact that participants create a boom-bust pattern anyway is overwhelming evidence of the power of the herding impulse.

NOTES 16 Pigou, A.C. (1927). Industrial fluctuations.

17 From Charles J. Collins’s foreword to Elliott Wave Principle.

18 Pigou, A.C. (1920). The economics of welfare, as quoted in Vittachi, N. and Faber, M. (1998). Riding the millennial storm, p. 112.

19 Among others, such measures include put and call volume ratios, cash holdings by institutions, index futures premiums, the activity of margined investors, and reports of market opinion from brokers, traders, newsletter writers and investors.

20 Smith, V.L., Suchanek, G.L. and Williams, A.W. (1988, September). “Bubbles, crashes, and endogenous expectations in experimental spot asset markets.” Econometrica, Vol. 56, No. 5, p. 1149.

21 Bishop, J.E. (1987, November 17). “Stock market experiment suggests inevitability of booms and busts.” The Wall Street Journal, p. 31. Smith also notes in this article that when he imposes artificial trading curbs that limit downside movement during a session, it encourages people to generate a stronger-than-normal boom, which in turn makes the ensuing crash worse. Such mandated trading halts, which are in force today, are bound to make crashes worse from another perspective. When people are invested and know that with a bit more decline they will lose their option to exit and be stuck with their shares, they panic even more than they would have otherwise. Potential new buyers will be reluctant to enter because they, too, might get stuck.

mwdallas

2003-10-14 01:52 | User Profile

Good find, Travis.