Irrational Exuberance
Version 1.0.0 · Updated 2026-07-30
CORE DEFINITION
Asset prices are pushed to unsustainable levels by investors' psychological enthusiasm rather than fundamentals. It is typically driven by a positive feedback loop (price increases → more buyers → further price increases).
SCAFFOLDING EFFECT
Reduce cognitive load
- Bubble warning: When shoeshine boys on the street are talking about stocks, or loss-making companies are valued in the billions, that is irrational exuberance. At such times, the action is not to chase highs but to find an exit.
Anchor fast decisions
Rising prices attract new buyers, whose entry further pushes up prices, forming a self-reinforcing positive feedback loop; investors relax valuation standards amid herd sentiment, causing prices to detach from fundamentals.
MINIMUM ACTION
In progress 0/4Practice this model in one real situation:
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Source support: Explicit
- en.wikipedia.orghttps://en.wikipedia.org/wiki/Irrational_exuberanceverified
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