Cognitive Scaffold

Preparing your thinking workspace

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MENTAL MODEL · M2730

Greater Fool Theory

Greater Fool Theory
BehaviorHigh supportPsychology
Included
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Version 1.0.0 · Updated 2026-07-30

CORE DEFINITION

In capital markets (such as cryptocurrencies, tulip mania), people are willing to pay a high price for a commodity that is obviously not worth that price because they expect that there will be a 'greater fool' willing to buy it from them at an even higher price. As long as you can pass the baton, you are not the fool. - Scaffolding role: insight into the essence of speculative games. - Different from the 'winner's curse' (unintentionally paying a high price), the Greater Fool Theory is knowingly committing. The premise of participating in this game is that you must be extremely confident that you are not the last one to hold the baton. This is also the key to identifying bubbles: when even the auntie at the vegetable market is discussing that this asset can make money, the 'fool pool' may have dried up.

SCAFFOLDING EFFECT

psychology

Reduce cognitive load

Insight into the essence of speculative games. - Different from the 'winner's curse' (unintentionally paying a high price), the Greater Fool Theory is knowingly committing. The premise of participating in this game is that you must be extremely confident that you are not the last one to hold the baton. This is also the key to identifying bubbles: when even the auntie at the vegetable market is discussing that this asset can make money, the 'fool pool' may have dried up.

anchor

Anchor fast decisions

Asset prices are supported by 'whether there is a greater fool to take over' rather than intrinsic value, forming a positive feedback relay; when potential buyers are exhausted (the fool pool dries up), the price collapses, and the last holder bears all losses.

MINIMUM ACTION

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Source support: Explicit

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    zh.wikipedia.orghttps://zh.wikipedia.org/wiki/%E5%8D%9A%E5%82%BB%E7%90%86%E8%AE%BAZH · Explicit
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