A democracy where people vote with their money. Since their is significant risk involved, said people are assumed to do at least some due diligence/research before placing their "votes." And for that reason people have confidence that markets are right/smart, because why would so many intelligent people put themselves at enormous risk by placing their confidence in a bad investment?

Of course if the original investors get rich, eventually this leads to ignorant people (i.e. people who have not done their research) jumping in and the smart market becomes something else.

I know I am oversimplifying