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I'm betting that they were stupid too because it was sixteen god damn hundred, but my point is that speculation during a possible bubble is not automatically stupid because the probability of the bubble bursting is not necessarily 1. As wuf mentioned, some of the housing "bubbles" have been inflating for a very long time now. In the same way, it is not automatically smart to take a position when a stock has dropped to 1% of its peak price. It can always go lower, and often it does.
If your point is that human nature makes people susceptible to making idiotic bets in either of these cases, I'm inclined to agree with that. But again, I don't consider it a limitation of markets. People are susceptible to drug addiction too, but that doesn't make drug prohibition any less of a disaster. Capitalism generally rewards profitable behavior and penalizes unprofitable behavior. What better answer to human frailty is there?
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