Individual Versus Social Mood
If our own mood is the manifestation of our own level of self-confidence, then social mood can be thought of as the aggregate outcome of all of our individual moods put together. That is to say, social mood is our collective confidence.
I’d note, though, that even our own moods are rarely ever truly our own. At both an individual and collective level, our moods reflect our own interconnectivity with the world around us. Your personal mood, for example, incorporates the mood of your family, your work associates, members of your church, your book club, and so on. Your partner’s mood picks up his or her network of family, friends, and professional and social affiliations. Together your collective mood, as a couple, folds in elements of them all.
I like to think of all of these social interconnection points as mood mirrors. Sometimes these mirrors reflect your herds’ mood on you, and at other times these mirrors reflect your mood on them. Like it or not, though, your mood reflects the mood of the various herds you run with. You share their beliefs and they yours, and together, through an iterative and interactive process, your underlying mood is shaped and your brain then chooses a course of action that you believe is best.
That is how mood is formed for each of us, and how ultimately social mood comes together in aggregate. It is not just the sum of the parts, but the sum of the interactions (and re-interactions) of the parts that drive mood.
As noted in the Introduction, socionomists have deduced from the evidence that social mood is a natural product of human interaction and our natural herding instinct. As one who watches the interplay of social mood and the markets, I can say that nowhere does this iterative process become clearer than in the formations and re-formations of various “consensus trades”—where investors go from sharing one clear belief in what security or strategy will outperform another. Particularly for the retail investor, I think it is important to realize that in the investment world, they are often the very last to see and to participate in these collective iteratively formed “crowded trades” of the herd.