Historical examples highlight market irrationality from "summary" of Irrational Exuberance by Robert J. Shiller
The examination of historical examples can provide valuable insights into the irrationality of markets. By looking back at past episodes of market exuberance, we can better understand the mechanisms at play and the consequences that follow. One of the key takeaways from studying history is the realization that markets are not always rational or efficient. In fact, they are often driven by emotions, biases, and herd behavior, leading to bubbles and busts.
For instance, the dot-com bubble of the late 1990s serves as a poignant illustration of market irrationality. During this period, investors were caught up in the hype surrounding internet companies, driving their stock prices to astronomical levels. Despite the lack of profits or sustainable business models, investors continued to pour money into these companies, fueling the bubble even further. When the bubble finally burst in the early 2000s, investors suffered massive losses as stock prices plummeted.
Similarly, the housing market bubble of th...
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