Don’t be the fool: How narratives drive booms—and busts

Editor’s note: This article first appeared in Money Matters, a newsletter from Britannica Money, on April 1, 2026.

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Don’t let the markets fool you.

© gregory tkatc/stock.adobe.com; Photo illustration Encyclopædia Britannica, Inc.

April Fools’ Day. It’s an occasion for crazy-but-plausible stories—hook in a few believers, then share a laugh and move on. But the markets have their own version that pops up every now and then—not necessarily in April—and when the dust clears, it’s no laughing matter.

It’s called the greater fool theory, and it’s contributed to countless booms, busts, and lost fortunes. Want to avoid playing the fool? Read on. 

Markets don’t always move on earnings, cash flow, or interest rates. Sometimes they move on stories—compelling, contagious, and just believable enough to pull in the next wave of buyers. We become convinced that “it’s different this time.”

According to the greater fool theory, you don’t necessarily need to believe the story to become swept up in it. You might think: “I’m a smart and savvy investor. I can ride this wave until the end, knowing that there will be someone else (a ‘greater fool’) willing to take these assets off my hands when it’s time to get out.”

But it’s never different this time. The music stops, and the last group of investors is left holding the bag.

It’s played out again and again. The crash of 1987 (Black Monday), when a popular hedging strategy known as “portfolio insurance” triggered waves of selling that fed on themselves. The dot-com bubble, where clicks mattered more than profits. The housing run-up into the global financial crisis and Great Recession of 2007–09, when “home prices always go up” became gospel. Precious metal booms. Crypto surges. Meme stocks.

History tells the same story. In 17th-century Holland, tulip bulbs traded for the price of a home—until one day they didn’t. In 1929, stocks soared on renewed optimism, new technologies, and easy money before reality reset expectations. Sometimes, the aftermath of a boom-and-bust cycle leaves a scar that lasts for generations.

Here’s the thing: Bubbles are easy to see … after the fact. But in real time, they look like opportunity, especially when you’re buying what looks like a temporary dip in prices. That’s what makes the greater fool theory so alluring: the same price action that signals risk also signals momentum.

And there’s always at least a kernel of truth in the underlying narrative. Usually, it’s a new, revolutionary technology—railroads in the 1850s, radio and automobiles in the 1920s, the Internet in the 1990s, or artificial intelligence today—and the prevailing wisdom is to pile in today or risk being left behind.

The hardest part about bubbles is that they don’t feel like bubbles while they’re forming.

For example, the artificial intelligence (AI) revolution appears to be real. The investment wave around it is massive, with big tech on track to spend roughly $650 billion on AI infrastructure in 2026 alone. But parts of the market are starting to ask a familiar question: How much of the future is already priced in? Here are a few things to watch:

It’s OK to believe in the story but still question the price.

Bubbles burst. They always do. But that doesn’t mean the story disappears with them.

The Internet didn’t fail because dot-com stocks crashed. Amazon, Qualcomm, and Cisco—to name a few—came out of that era as dominant players, and a few years later, Google went public and helped define the next phase. Housing didn’t vanish after 2008. Prices reset, credit tightened, and over time the market rebuilt.

The pattern shows up again and again: The narrative often survives. The pricing doesn’t.

That’s the distinction that matters. You can be right about the future and still overpay for it today. And when that happens, timing—not just direction—determines the outcome.

To paraphrase an old poker adage: If you can’t spot the greater fool in the market, it might just be you.