Frenzy: Bubbles, Busts, and How to Come Out Ahead
Irrational exuberance is the predictable outcome of human nature and competitive pressures, contends this engaging post-mortem on the Internet bubble. Haacke, an economic policy advisor in the Clinton Administration, treats the bull market of the 1990s as an exercise in group psychology. Investors, who understood little of the Internet’s novel capabilities, had their perceptions clouded by media hype and optimistic analysts and fell prey to such cognitive lapses as the "representative heuristic" (memorable events model the norm), the "simulation heuristic" (what can be imagined can be achieved) and the "information cascade" (other bullish investors must know what they are doing). Investment professionals are paid to be more level-headed, but as technology stocks skyrocketed and clients demanded gargantuan returns, venture capitalists, investment bankers and fund managers felt pressured to abandon common sense in pursuit of wildly over-valued dotcoms. Haacke presents a lively and insightful account of the Internet bubble—complete with rueful commentary from chastened venture capitalists—set against colorful retrospectives of previous financial manias, from the 19th-century railway boom to the personal computer craze of the 1980s. Along the way, he throws in a few words of wisdom like "embrace the skeptics" and "be wary of information manipulation." This advice is sure to be ignored when the next bubble begins to swell, but in the meantime readers will find the book an amusing guide to the madness of crowds.Copyright © Reed Business Information, a division of Reed Elsevier Inc. All rights reserved.