The Socionomic Theory of Finance

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.