Historical amnesia contributes to the recurring pattern of financial bubbles from "summary" of A Short History of Financial Euphoria by John Kenneth Galbraith
The forgetting of history is a key element in the recurrence of financial bubbles. Time and again, people are prone to forgetting the lessons of the past and succumb to the same mistakes that have led to financial disasters before. The cycle of boom and bust is a familiar one throughout history, yet each time a new bubble emerges, it seems that people are caught off guard as if it were a completely novel phenomenon. When a financial bubble is in the making, there is a collective amnesia about previous bubbles and their eventual bursts. People become swept up in the euphoria of the moment, believing that "this time is different" and that the laws of financial gravity no longer apply. Rationality gives way to irrational exuberance, and caution is thrown to the wind as greed takes over. The warnings of past bubbles are dismissed as irrelevant, and those who dare to point out the similarities are often labeled as party poopers or naysayers. The belief in the infallibility of the current bubble becomes so strong that it blinds people to the warning signs that are plain to see for those who care to look. In the aftermath of a burst bubble, there is a period of shock and disbelief as the harsh reality sets in. People wonder how they could have been so blind, but the allure of easy money and the fear of missing out are powerful forces that can cloud judgment and lead to poor decision-making. It is only a matter of time before the cycle begins anew, with memories of the past fading and the stage set for another round of financial euphoria and subsequent collapse. Until we learn to heed the lessons of history and guard against the dangers of collective amnesia, we are doomed to repeat the same mistakes over and over again.
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