Thomas theorem

The Thomas theorem is a theory of sociology which was formulated by W. I. Thomas (1863–1947) in the year 1928:

“ If men define situations as real, they are real in their consequences. ”

In other words, the interpretation of a situation causes the action. This interpretation is not objective. Actions are affected by subjective perceptions of situations. Whether there even is an objectively correct interpretation is not important for the purposes of helping guide individuals' behavior.

In 1923, Thomas stated more precisely that—particularly within common social worlds, any definition of the situation will influence the present. Not only that, but—following a series of definitions in which an individual is involved—such a definition also "gradually [influences] a whole life-policy and the personality of the individual himself". Consequently, Thomas stressed societal problems such as intimacy, family, or education as fundamental to the role of the situation when detecting a social world "in which subjective impressions can be projected on to life and thereby become real to projectors."

Classical examples

If many people in one place follow the false rumour that their bank has gone bankrupt, and all of them go to the bank to withdraw their money, the bank will become bankrupt in reality, even though the crisis began simply as a rumour.

The 1973 oil crisis resulted in the so-called "toilet paper panic." The rumour of an expected shortage in toilet paper—resulting from a decline in the importation of oil—led to people stockpiling supplies of toilet paper. This caused a shortage, which seemed to validate the rumour.

The Beauty Contest Theory, developed by John Maynard Keynes, justifies why the share price does not necessarily develop according to rational expectations. He acts on the assumption that many investors make their decisions not according to their own economic evaluation of the value—for example of a share, but by predicting the estimates of other market participants.