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> What are the problems with bubbles if investors can be cushioned from their worst effects when they occur? I don't think both can be mutually exclusive. For
by thisisit 9y ago
> What are the problems with bubbles if investors can be cushioned from their worst effects when they occur?
I don't think both can be mutually exclusive. For a bubble to occur investors have to be irrationally exuberant. If they are more prudent and cushion themselves from the worst effects then we might not have a bubble, ever.
- crdoconnor 9y ago>I don't think both can be mutually exclusive. For a bubble to occur investors have to be irrationally exuberant. Not necessarily. They could just be thinking that everybody else is irrationally exuberant. c.f. https://en.wikipedia.org/wiki/Keynesian_beauty_contest https://en.wikipedia.org/wiki/Keynesian_beauty_contest
- joe_the_user 9y ago"For a bubble to occur investors have to be irrationally exuberant." Well, if some system which guarantees a class of investors won't suffer even if the market tanks, you can't really say these investors irrationally exuberant. It's more like they're quite rationally enthusiastic, knowing full well they can't lose.
- AnimalMuppet 9y agoMore precisely, for it to be a bubble, people have to be buying because the asset is going up, not because of the fundamentals. It's hard to do that and not be "irrationally exuberant", because you are explicitly disconnected from the rational valuation of the asset.