Thursday 12 September 2002

Pic of the day: The magazine mentioned in the text.

Forethought

In Al Schroeder's webcomic MindMistress, there is a character called Forethought (a direct translation from ancient Greek Promethevs). This character is far more intelligent than any other human being, and this gives him the ability to perceive patterns in human history that others cannot see – just as a human can spot patterns that a chimp cannot. (See comic.)

I have at times considered myself this kind of person, albeit not quite to the same degree. (And probably so has Schroeder.) Certainly regular readers will know that the stock market collapse came as no surprise to me – it was as obvious as a thundercloud riding on the wind. I am however hesitant to predict the state of the stock market 30 years from now. But not all feel so limited.

According to an article in New Scientist (a quite serious UK science magazine), a school of social mathematics called socionomics can do far more than detect rough patterns in the stock market. Using patterns known as Elliott waves, they predict a wide range of trends in society. The Elliott waves were indeed first developed for use in the stock market, but have been extended to such things as fashion and even war and peace.

Reading the article reminds me forcefully of Isaac Asimov's “psychohistory”, a science of human civilization. According to Asimov, this was only possible when you had very large populations, more than you could fit on one single planet. Socionomics does not seem so constrained. While it will not predict the value of a certain stock option at a certain date, it is still reliable enough that its foremost guru, Robert Prechter, could predict the summit of his own popularity and its inevitable decline ...

***

But doesn't this interfere with free will? Not in my opinion. Free will is subjective: Even if another knows what you will do, you don't, and so you still have a choice. And it's not like any one individual can be predicted anyway. It still works only on groups. There is nothing new about that. Any fool can predict that the shops will be pretty packed just before Christmas, or that liquor shops have a line just before they close for the weekend. Even if you know this and avoid the places, there are still enough others who just don't get it, so the pattern continues.

It's not like I was the only one to warn people, or Prechter was the only one. Even Alan Greenspan, of Federal Reserve fame, warned people years ago about the irrational exuberance. Did they listen to him (the world's best informed economist) any more than they did to me? No. They listened to their own emotions, and will always do. Emotions are great fun. Equations suck.

This also explains why these people can publish the principles of socionomics and the waves don't collapse. You would think they'd hoard the knowledge so they alone could have a drinking straw into the stock market. If they publish it, won't everyone get the chance to ride the trend, and won't that negate the trend? It would if everyone was aware on the waves and acted on that awareness. But most people will never know even if you tell them. Because most people are just plain dumb? Or because they choose to believe in free will ... even against evidence?

Visit New Scientist online: http://www.newscientist.com/.
Find a motherload of Elliott Waves here: http://www.elliottwave.com/.
Meet Bob Prechter at the Bears Den.
(This interview was obviously done before the turn of the markets in 2001. It is particularly chilling to see his statement that "wars usually follow a bear market" [a sliding market, for those not into the dialect].)