Steven Pinker on Speculative Bubbles and the Impact of Public Signals

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0:56Steven Pinker:Speculative bubbles. examples, crypto perhaps being one of the most recent examples, are cases where people think that other people will, in the future, will want to buy in. Something that's called the greater fool theory of investing, that you invest because you think other people will invest because they think that still other people will invest. The thing is, of course, bubbles can pop when the market starts to run out of the greater fools who think that it will continue to appreciate forever. But this can all get started when there is some public signal, like in the case of the emperor's new clothes, the boy blurting it out, or like a public ceremony or a public signal.

1:37Steven Pinker:Or if there is just a rumor or some reason to think that other people are getting in, that can cause other people to get in. A couple of recent examples are meme stock, where an influencer might talk up a stock, even if the fundamentals are pretty crummy. But the fact that other people know that he's talking it up and they know that still other people are talking it up means that it really can appreciate, at least for a while. Two Super Bowls ago, there were a number of high concept ads for crypto exchanges, which mentioned nothing about the advantages of crypto. These are the Larry David ads.

2:13Steven Pinker:The Larry David, the Matt Damon, where the point of the ads were everyone's getting into crypto, don't be left out. And in fact, the punchline to the Larry David comic ad was, don't be like Larry, don't be left out.

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