irrational exuberance

"Irrational exuberance" refers to a speculative economic bubble where asset prices rise far beyond their fundamental value due to excessive hype and investor optimism. This phenomenon was famously described by former Federal Reserve Chair Alan Greenspan in 1996, warning that soaring stock prices might not be sustainable.12

The concept is closely related to the "greater fool theory," which posits that an asset's price can be driven up by investors who believe they can sell it to someone else at an even higher price, regardless of its intrinsic worth. Historical examples include the Dutch Tulip Mania in the 17th century and the dot-com bubble of the late 1990s. Central banks, like the Federal Reserve, aim to manage money supply and credit to foster economic stability and prevent such speculative excesses.31245