Speculative bubbles are fueled by irrational beliefs from "summary" of Irrational Exuberance by Robert J. Shiller
Speculative bubbles are fueled by irrational beliefs. Investors get caught up in the excitement of rising prices and convince themselves that the trend will continue indefinitely. They ignore warning signs and instead focus on the potential for quick and easy profits. This irrational exuberance leads to inflated asset prices that are detached from their fundamental value. The belief that prices will only go up creates a self-fulfilling prophecy as more investors jump on the bandwagon, further driving up prices. This feedback loop reinforces the irrational behavior and creates a bubble that eventually bursts when reality sets in. When investors realize that prices are unsustainable, panic selling ensues, causing prices to plummet dramatically. The psychology of speculative bubbles is driven by a herd mentality where investors follow the crowd rather than making informed decisions based on rational analysis. This herd behavior leads to ...
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