Mr. Shiller employs a social psychological explanation that he terms the "feedback loop theory of investor bubbles." Simply stated, the fact that so many people seem to be making big profits on the investment, and telling others about their good fortune, makes the investment seem safe and too good to pass up.
Tuesday, January 6, 2009
Gullibility and Madoff
In a long but fascinating article about gullibility, Steven Greenspan explains how he invested a large amount of money with Bernie Madoff. He even talks about feedback in several places.