Are markets efficient at estimating the value of stocks with the information at hand or can markets be irrational and if so is there anything we can do about it?
Are all bubbles the same? Does a bubble always lead to a burst and are some bursts always preceded by the same type of bubble? Not every collapse in a market is preceded by an overvalued bubble, but can occur due to low demand in the market not foreseen, but how can one say when a burst was due to changes in a market not foreseen or because of an over valuation that the investors also did not see?
Irrational crowds
Surely crowds are as smart as the people that make up the crowd, but crowds can act in seemingly irrational ways.
- One person may feel his one vote doesn't make a different so doesn't vote, but when many people don't vote their votes together couldn't changed elections.
- An investor selling stocks in anticipation of other people selling their stocks who are anticipating him selling his stocks, due to bad new information about those stocks.
It's true crowds can be irrational but is this why bubbles are created? And even if it is, the same problem is true how can I know if a market is over valued or when will it just change due to changes in the market not foresaw?
Planet money podcast on bubbles
More or less podcst on bubbles
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