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Irrational exuberance

As explained in Investing for Programmers

Irrational exuberance is excessive investor enthusiasm that drives asset demand beyond what rational analysis supports.

Irrational exuberance describes excessive investor enthusiasm that repeatedly turns hope in a promising trend into demand unsupported by rational analysis. Mass psychology makes markets difficult to predict. section 8.1.3

Practical implications include:

  • Recognize that greedy, trend-driven behavior can create speculative bubbles. section 8.1.3
  • Counter enthusiasm by examining business models, economic moats, and quality criteria for long-term holdings. section 8.1.3
  • Treat machine-learning predictions from time-series data cautiously because decision-making is limited by randomness and human emotion. section 8.1.3

Tulip mania

The seventeenth-century Dutch tulip mania illustrates how collective enthusiasm can inflate an asset bubble beyond defensible value. section 8.1.3

How Investing for Programmers covers it

How deep it goes
Defines the behavior, gives its historical example, and outlines long-term investing and simulation responses without developing a predictive model.
Examples
Uses tulip mania as a historical example of collective enthusiasm creating a speculative bubble.
What you can do after
Evaluate trend-driven investment claims while accounting for randomness, human emotion, and the limits of machine-learning forecasts.
How it connects
Connects irrational exuberance with market psychology, asset bubbles, long-term investing, economic moats, machine learning, and Monte Carlo simulation.
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