Rational analysis is overshadowed by emotional impulses during financial bubbles from "summary" of A Short History of Financial Euphoria by John Kenneth Galbraith
In the heady moments of a financial bubble, rational analysis often takes a back seat to emotional impulses. Investors get caught up in the frenzy of rising prices and the promise of quick profits, leading them to make decisions based more on excitement and greed than on careful consideration of the facts. As John Kenneth Galbraith explains in 'A Short History of Financial Euphoria,' this shift from rationality to emotion is a common feature of speculative manias. During a bubble, the prevailing sentiment among investors is one of euphoria and optimism. People believe that they have discovered a foolproof way to make money and that the good times will never end. In this atmosphere, anyone who questions the wisdom of the crowd is dismissed as a pessimist or a spoilsport. Rational analysis, with its emphasis on prudence and risk management, is seen as out of touch with the prevailing mood of exuberance. The main driving force behind this shift in mindset is t...
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