The psychology of boom and bust cycles repeats throughout history from "summary" of A Short History of Financial Euphoria by John Kenneth Galbraith
The history of financial markets is marked by an unmistakable pattern of boom and bust cycles. These cycles, driven by the collective psychology of investors, have repeated themselves time and time again throughout history. The euphoria that accompanies a boom is fueled by the belief that the good times will never end, that prices will continue to rise indefinitely. This irrational exuberance leads to speculation, as investors pour money into increasingly risky assets in search of ever-higher returns. As prices skyrocket, more and more people are drawn into the market, lured by the promise of easy money. The frenzy reaches a fever pitch as everyone from ordinary citizens to institutional investors clamor to get a piece of the action. But beneath the surface, the seeds of the next bust are already being sown. The same psychology that drove prices up during the boom now turns against investors as fear takes hold. As prices begin to fall, panic sets in, and investors rush to sell their assets before they lose even more money. The market spirals downward, wiping out fortunes in a matter of days or even hours. The same assets that were once the darlings of the market are now pariahs, with no one willing to touch them. The cycle has come full circle, with the boom giving way to a bust that leaves devastation in its wake. Despite the lessons of history, the psychology of boom and bust cycles continues to repeat itself. Each new generation of investors believes that this time is different, that they have found a way to beat the market and avoid the inevitable crash. But the truth is that human nature is a constant, and the same emotions of greed and fear that have driven markets for centuries will continue to do so in the future. Until investors learn to temper their emotions and approach markets with a rational mindset, the cycle of boom and bust will persist.
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