Page 160 - Psychology of Money - Timeless Lessons on Wealth, Greed, and Happiness-Harriman House Limited (2020)

The implosion of the dot-com bubble in the early 2000s reduced household
COBACOBA
wealth by $6.2 trillion.

The end of the housing bubble cut away more than $8 trillion.

It’s hard to overstate how socially devastating financial bubbles can be.
They ruin lives.

Why do these things happen?

And why do they keep happening?

Why can’t we learn our lessons?

The common answer here is that people are greedy, and greed is an

indelible feature of human nature.

That may be true, and it’s a good enough answer for most. But remember
from chapter 1: no one is crazy. People make financial decisions they regret,
and they often do so with scarce information and without logic. But the
decisions made sense to them when they were made. Blaming bubbles on
greed and stopping there misses important lessons about how and why
people rationalize what in hindsight look like greedy decisions.

Part of why bubbles are hard to learn from is that they are not like cancer,
where a biopsy gives us a clear warning and diagnosis. They are closer to

the rise and fall of a political party, where the outcome is known in
hindsight but the cause and blame are never agreed upon.

Competition for investment returns is fierce, and someone has to own every
asset at every point in time. That means the mere idea of bubbles will
always be controversial, because no one wants to think they own an
overvalued asset. In hindsight we’re more likely to point cynical fingers

than to learn lessons.

I don’t think we’ll ever be able to fully explain why bubbles occur. It’s like
asking why wars occur—there are almost always several reasons, many of
them conflicting, all of them controversial.