Speakers 2012 Presentation Abstracts

Terry Burnham
The Neural and Emotional Basis of Herding in Financial Markets

Since the creation of financial markets, people have followed the impulse to herd. Recently, scientists have begun to understand the neural and emotional basis of this behavior.

The evidence suggests three facts about human decision making. First, the brain is not unified; there are multiple compartments involved in decision-making. Second, the parts of the brain that make decisions may function outside our awareness, thus decision-making is non-conscious and hard to understand through introspection. Third, the dopamine reward system plays an important role in herding by inducing behavior that feels good but is against our own financial interest.

There are two approaches that can limit the financial losses caused by a brain built for herding. First, it is possible to rewire the brain. Second, investors must use investing systems that do allow part of the brain to impoverish the host.

Peter Atwater
Horizon Preference: How Changes in Social Mood Affect Decision Making

The “Horizon Preference” model is the topic of Peter Atwater’s presentation, including how changes in mood innately alter our time, space and relationship horizons. He argues that changes in Horizon Preference are a critical link in the transmission process from a specific mood to a series of consistent specific actions. This explains why, for example, we naturally prefer to rent, rather than own, during periods of weak social mood.

Atwater will also discuss how he uses socionomics and the Horizon Preference model in his consulting work to the money management industry, corporations and public policymakers.

Leena Ilmola-Sheppard
Qualitative Social Mood Indicator: Two Case Studies

The International Institute for Applied Systems Analaysis (IIASA) established in 2011 a special initiative for exploratory research. The Extreme Events team studied the opportunity to use a combination of qualitative and quantitative methods for prediction of social mood.

During the summer 2011 we ran a special study for the European Ministry of Defense. The project developed the specific Social Mood Indicator (SMI) and also defined a configuration for tools for following up shifts in the social mood of the population. The ultimate aim of the project was to produce a pragmatic indicator for scanning of the difficult to-measure space for identifying environments that may facilitate the emergence of unknown events.

In our empirical work we applied from four principal theoretical frameworks:
1. Socionomics (Prechter 2003, Casti 2010) — how the social mood, the way a population feels about the future, biases and shapes the character and timing of social events, such as elections, political and social upheavals and economic trends (National Coordination Secretariat 2008, 143-168).

2. Mental model concept of Complex Adaptive Systems theory (Andersson 1999, Morel and Ramanujam 1999, Stacey 2000) cognitive filter theory (Ansoff 1979 , Weick 2001)

3. Identity concept of Jane Dutton and acculturation theory of John W. Berry. Dutton (Dutton 1987, Berry 2006) defines identity as the outcome of two elements; a perceived identity of person/organisation/nation and the person’s desired future. For diagnostic purposes we are using the acculturation model that has been developed (Berry, 2006); Rudimin, 2003) for understanding the dynamics of the social system.

4. The concept of social/psychological contagion describes transmission of attitudes, beliefs and behaviors among people (Christakis & Fowler 2007, Dodds & Watts 2004, 2005, Granovetter 1978). Like a virus, beliefs, attitudes and behaviors can spread out through interactions among people. As a matter of fact, this concept is particular relevant for the spreading of social mood states, since social mood arises not only from individual moods, but in particular from interactions of people with their social environment.

The project studied both the past dynamics of social mood and identity, as well as defined a cost efficient method for collecting both qualitative and quantitative data on the SMI. In my presentation I will focus the attention to the collection and analysis of qualitative data.

Jose Carlos Carvalho
Brazil’s Socionomics: From Basket-case to Superstar

Brazil has traditionally been a country of extremes; this aptly applies to its social mood over the last three decades. During much of the 1980s to 1998, the country produced an extremely negative social mood, during which time the country experienced hyper-inflation, poor stock and capital market performance, political infighting, and a general economic malaise.

From 1999 to 2002, Brazil’s social mood bottomed. After this transitional period, social mood skyrocketed producing one of the most positive national environments in living history. This has been visible in tremendously strong stock and capital markets, extraordinarily high political popularity levels, and an economic boom.

Special attention is given to Brazil’s political landscape during this extended period. Traditional, conservative, ‘safe-bet’ type politicians dominated during Brazil’s negative social mood period. At that time, Lula, who later not only won Brazil’s presidency but became its most popular in history as well as its most influential globally, was depicted as an apocalyptic candidate, one which would tear the country apart. Near the low of the Brazil’s social mood, in 2002, Lula was elected president, after having lost in the previous three presidential elections.

Jordan Kotick
Presentation Abstract

The three epistemological questions are always

What do we know,
How do we know it, and
What are we going to do about it?

While the first two questions have been addressed, the third remains open.

In fact, there is a window of opportunity given the shifting financial landscape to not only challenge conventional wisdom but at the same time, complement traditional economic approaches through socionomics.

Given the growing correlation between mind share and market share, this discussion will focus on how this opportunity is being captured across various global markets, with various global participants, in a culturally specific way.

Kevin J Coogan
Social Mood as a Predictor of Global Equity Market Inversions.

A look at the emergence of a global social mood, its measurement using text analytics on news and social media, and its predictive characteristics in relation to the global equity market peaks of 2007 and 2011.

This talk will detail the market bottoms of 2009 and 2010 (showing regional mood indices with a focus on Europe’s rapid deterioration in front of the other regions), as well as highlighting some of the presenter’s anecdotal observations from witnessing social mood changes during various market cycles — in real time — over the last two decades, which led to the creation of his proprietary Mood Index system.

Richard Peterson
Investors Reacting: Greed, Fear, and the Predictive Power of Financial Emotions

You might think that investing is a rational pursuit, but then you might not be an investor. In studying investors’ emotions expressed in financial social media via textual analysis, we found that emotions — especially joy and fear – are inversely correlated with future price changes in the short-term, providing evidence of investor emotional over-reaction. In contrast, investors’ analytical assessments of a company’s future earnings and accounting strength are positively correlated with future stock price direction, as quantified from accounting-related statements.

In this talk, Richard Peterson explains investment strategies deployed to profit from these findings. As proof of concept, we operated the world’s first social media sentiment-based hedge fund — MarketPsy Long-Short Fund LP – and outperformed the S&P 500 by 27% with 1/3 of the volatility over the 2 1/4 years of our trading (audited). The fund strategies we used relied upon this counter-intuitive truth — that rational analyses of company valuation made by online investors tend to be correct, except when magnified by emotion.

This talk summarizes Peterson’s research on investors’ emotions, explains the impact of emotion on market prices, demonstrates predictable seasonal variations in emotion, and identifies instances of online emotional contagion among investors.

Euan Wilson

Euan Wilson will present the socionomic story of the drug war. Beginning with how his research idea came about, Wilson will show how social mood affects social willingness to pursue drug enforcement. He will also discuss the correlation (or lack thereof) of drug consumption and social mood, as well as examine a few drug-related major events in history and how social mood affected respective outcomes.