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Irrational exuberance and the madness of crowds...

The title of this article combines comments by Alan Greenspan about the stock market boom of the 1990s (”irrational exuberance”) and the title of a book by Charles Mackay. The book, “Extraordinary Popular Delusions and the Madness of Crowds”, is a short but interesting one, covering those aspects of human psychology, sociology and politics that lead to what are known as bubbles. A bubble is loosely defined as what happens when the price of a particular class of item breaks away from fundamentals and, in effect, goes up because everyone expects it to go up. We’ll rewind a bit here and take a look at the way markets usually work; all markets, not just financial ones. Company A...

posted on: Nov 25, 2007 | author: Alex