It's any interesting question whether or not it's rational to invest in a speculative bubble, solely on the basis of everyone else also investing in that same bubble. On a per-transaction basis, each step can be individually rational, even as it contributes to an eventual net loss systemically. Steering clear of such "Keynesian beauty contests" [0] is a curious sort of collective action problem.
There was an interview with a fund manager, after the toxic asset crash. The person said they had known the bubble would burst but the (short term, on-paper) profits were so high that they bought anyway in fear of customers moving their money to other funds if they didn't.
Sort of a collective chicken race towards a hard wall.
just yesterday biking back i ran into a fleet of birds eating bread, as i got close to the first one, he flew away, then the others etc etc
I realized that it's probably just a safe heuristic to do what others do. It can lead to lemmings falling off a metaphorical cliff, but I'd bet 10$ our social nature is a direct descendant of that. Even mirroring desires that cause so much troubles in human lives.
I find this is both a blessing and a curse of a society (no matter in which animal kingdom). Provides safety when it's needed, and the opposite of safety when followed blindly.
Before asking such questions one has to define "rational".
It's obviously very profitable to the few that excell at that (Soros is the best known example) and creates losses for the others, sometimes substantial losses.
Fair, "rational" is a thorny term in general. I suppose it's easier to invert the proposition, that it is not obviously irrational: one can have complete information, and be of sound mind, and yet still choose to buy into a tulip bubble, knowing that that individual transaction's externality might only contribute 0.00...1% to the inevitable crash (or wealth extraction, if one wants to frame it that way).
You seem to be mixing externalities with personal gain here.
It is obviously "rational" (as in you'll be better off) to add fuel to the fire if you know reasonably well when to pull back and book profits, then move on to the next thing. It just happens at the expense of others. Hence my question - define "rational", then we can decide what is and isn't "rational".
The moral/legal concensus of the current era is that "everything is allowed by default, unless it gets so obviously bad that we ban it" (blacklisting). This wasn't always the case (though it usually was the case), for example the Soviet countries had a list of all possible agreements, and you couldn't make anything outside of this list (whitelisting).
Thank you for clarifying. I'm assuming (without endorsing) the "capitalist realism" and "rational self-interest" Overton Window of the industrialized West.
I suppose what I'm pushing back against, is the conventional story that tulip bubbles are purely a sucker's game: a belief that "a fool and their money are soon parted" (and the follow-on belief that they deserve to!). There are indeed low-information investors, quasi-gambling-addictions, true believers, etc; but I think we underestimate the game-theoretic trap of zero-sum speculative bubbles, if we merely scoff at the "suckers" buying into beanie babies, or NFT jpegs, or whatever the next thing ends up being.
The thing is that in practice the vast majority ends up down, always, and I mean always. Maybe not completely rekd (people do have some sense of danger) but surely down. This is one of the (valid) arguments used by indexers, the vast majority of individual trading portfolios end up with negative returns. Also corroborated by many stories from successful traders, they usually blew up a few accounts before they figured out something that actually has an edge.
OTOH if you're a young zoomer it really doesn't matter if you blow up your (larger) lunch money.
