Monday, July 11, 2011

Bubble illusion

University of Oregon economics professor Mark Thoma writes:
A couple of recent conversations have convinced me that many people have "bubble illusion." When they talk about how much they have lost on their houses and in the stock market, and how that has affected their feelings of economic certainty, etc., the losses are almost always expressed relative to the peak bubble value rather than to a realistic assessment of what the house or stock was actually worth during the bubble years.
It does seem to me that whenever asset values are below their peak, people compare them to the peak. When the peak was a bubble, they're not thinking rationally.

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