Postrel’s Corollary

One upshot of the experiments Virginia Postrel has described could be the following: the more investors believe behavioral economics to be true, the more likely bubbles will develop in markets trading in assets.  As long as I’m overly confident in my own rationality and knowledge (a bias behavioral economics confirms) and as long as I think everyone else is a moron (my overconfident belief in behavioral economic theory in general) then it will make sense for me to buy assets now in the hopes of selling dearly to others later, when the rising momentum of irrationality has swept them away.

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