When a person buys an existing overvalued asset in the hope that someone else will pay more for it down the road is known as “the greater fool theory”. The buyer buys the asset though it seems to be overpriced than its intrinsic value to hope that the price will go up in future and someone else is going to buy it. The theory is based on the belief that a buyer is hoping for a greater fool from the market because he knows that his investment is not based on the worth of the asset. The fallacy of the theory which is overlooked by the investors that eventually market runs out of the greater fools. In the history, most of the speculative bubbles which ended up in the financial crisis are the implication of “the greater fool theory” such as Tulip mania (1637), Dot.com bubble (1990s-2000), Stock market and the housing bubble in the USA (2006).
Greater fool theory
7 years ago by autodidact88 (25)