I agree with you. I'll put it another way. Usually if the price of something goes up and becomes too high, fewer people buy and the price drops. That is a stable system. An unstable system is when the price of something goes up, so that causes more people to buy causing the price to go up more. That is an unstable system causing exponential growth, which I'd call a bubble.

Is the lesson learned that people are irrational gamblers?

I think the lesson learned is that the system is setup to encourage this kind of bandwagon investment. For example, all the people who are buying houses as a vehicle towards financial security: completely rational within the confines of the system we have. But causing huge problems, and therefore something that shouldn't be incentivised.

I'm seeing it in the sense of gambling: I buy when I think it's going to go up, you sell because you think it's going to go down (stocks), but people don't think, they just get excited, bubble happens, then we get a small minority winning big and the majority losing.

> "So people start buying it, because it's going up". That's speculation.

Mostly but not entirely. It's also previous shorters who buy to manage risk. These people are qualitatively different from the speculators.

That's just human psychology. Can't fix that one. It's one of the fundamental anomalies of markets. People also tend to sell more when the price is trending downwards, all other things being equal.

There's this branch of medicine called "therapy" that is specifically about fixing human psychology, and this other thing called "education" that aims to prevent issues identified in human psychology early in people's lives.

Also, “religion” and “culture”.

That does not mean it's not the problem

But where I disagree maybe is that it's a market anomaly. It sounds like a human anomaly but the market is here to allow it to be expressed fairly and in the open so that it corrects itself naturally over time.

The alternative is a small group of well educated or armed people planning the economy by 5-year increment for the good of the people. They can be right for very long, but is it fair to prevent us to make mistakes and only allow them ?

The market maybe isnt here to maximize efficiency of outcome, but maximize fairness of access ?

free market does not maximize anything. it just is. fairness is not in the equation. free market (or something similar) is just good enough way to organize economy with good enough outcomes.

> free market does not maximize anything.

That's a little too strong. It doesn't maximise efficiency of outcomes. But it does (more or less) maximise profit under free-market rules.

there's nothing wrong with speculation.

But there's something wrong with speculating using other people's money.

There's nothing wrong with speculating using other people's money as long as you're honest about it. Most mutual funds operate that way.

Do mutual fund investors accept that their money is on the line? As the saying goes, a financial crisis is when someone loses money and it's socially unacceptable for them to not be paid back. So perhaps a bubble is when you speculate with money that it would not be socially acceptable to lose.

Yes mutual fund investors accept that their money is on the line. Many mutual funds have negative returns. Your definition of a bubble makes no sense.