How to spot a financial bubble

The recent excitement over GameStop, Robinhood, and Bitcoin exhibited four characteristic subplots of a bubble: financial speculation dominates social interactions, professionals quit jobs to speculate, skepticism is met with anger, and outlandish financial forecasts are made.

While the first movers in a bubble can prosper, the vast majority of those who follow usually lose their shirts. However, bubbles usually benefit society at large. The example of Global Crossing shows how a stock bubble can impoverish investors but still benefit society by endowing the planet with much of its current bandwidth.

“It’s sad but true that a good story will often trump the most ironclad fact.”

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