I think the pons is shaking my asinorum off and into the river (efficiently).
I’m a bit confused. I can understand some of the anti-inductive situations, but not the general principle (other than “stuff bottoms out because there really is a lower bound (zero, obviously (baring items that can become so nasty/wasteful that you’d be willing to pay someone to take them off your hands, but that’s not really an issue here...)) And upper bounds because even if someone thinks something is a good investment, sooner or later they simply won’t be able to afford it… which means sellers can’t sell it, which means it will get cheaper”
Is this what you were going for? because, if not, I find myself a bit confused.
The knowledge about increasing prices would seem to me to itself push prices to increase faster (ie, everyone thinks something is a good investment, so many many buyers, so high demand, etc… up to the above mentioned limit) while if something is sinking and everyone believes it’s sinking, the demand will get lower, which means to get it sold will take faster price drops, which will lead to more people believing it’s sinking, etc..
I’m probably being stupid here, so can anyone clarify this for me? (Or is it just the bounds that I mentioned making things have to start going the other way eventually?)
The way I think of it: imagine you’re in the middle of Tulipomania and you’re thinking about sinking your entire fortune into a tulip bulb. You reason that the bulb is largely worthless since its function is to look nice and the value only comes from your expectation that you will sell it to someone else for more, who will reason the same way. This whole spiral feeds on something: credit, suckers, etc. The rational thing is to jump off just before the spiral runs out (and being an exponential process, the spiral won’t starve slowly but will crash hard—it won’t be that the banks are demanding somewhat higher interest rates for tulip-backed loans, but that there won’t be any at all). Of course, the other people are reasoning the same way, so they will be looking for the jump-off too; since one of the things the spiral is feeding on is you, your jump will contribute to the crash.
But what sparks you to think that the crash is about to occur (and cause a self-fulfilling prophecy)? Could be some exogenous event like a war or terrorist attack, but there must be one sooner or later: there are only so many tulips to buy & sell and investors are only willing to hold tulips for so long, they want to cash out at some point, but for there to be a seller, there must be a buyer...
If you can calculate this limit, then you know when you must jump off before, and so does everyone else who isn’t a fool, and you become a pack of penguins inching nervously to the edge, wondering who the first one shoved over will be to test the water for killer whales. At that point, a crash is only logical. The upper limit for bubbles is where not enough people can afford to buy the good or to hold the good; the lower limit is where the good is unfairly priced in the sense that it can be diverted to some other use (eg. we can imagine the US dollar depreciating only so far, because if a dollar is cheap enough, we could start buying it in bulk, shredding it, and turning it into fertilizer or linen or something).
I don’t know if this helps you, but it’s the way I see it.
In reality there are smart penguins and dumb penguins and penguin news papers. The professional penguins will tell other penguins how great it has been going so they can get out before the ledge breaks of and they all fall into the water.
To realize those booked earnings you have to sell without causing the crash, so you have to setup potential buyers first. That is why I consider articles about investing into something in major papers the last warning before the crash. When I read that the only smart thing to do, is to invest into … I know not too.
I think the pons is shaking my asinorum off and into the river (efficiently).
I’m a bit confused. I can understand some of the anti-inductive situations, but not the general principle (other than “stuff bottoms out because there really is a lower bound (zero, obviously (baring items that can become so nasty/wasteful that you’d be willing to pay someone to take them off your hands, but that’s not really an issue here...)) And upper bounds because even if someone thinks something is a good investment, sooner or later they simply won’t be able to afford it… which means sellers can’t sell it, which means it will get cheaper”
Is this what you were going for? because, if not, I find myself a bit confused.
The knowledge about increasing prices would seem to me to itself push prices to increase faster (ie, everyone thinks something is a good investment, so many many buyers, so high demand, etc… up to the above mentioned limit) while if something is sinking and everyone believes it’s sinking, the demand will get lower, which means to get it sold will take faster price drops, which will lead to more people believing it’s sinking, etc..
I’m probably being stupid here, so can anyone clarify this for me? (Or is it just the bounds that I mentioned making things have to start going the other way eventually?)
The way I think of it: imagine you’re in the middle of Tulipomania and you’re thinking about sinking your entire fortune into a tulip bulb. You reason that the bulb is largely worthless since its function is to look nice and the value only comes from your expectation that you will sell it to someone else for more, who will reason the same way. This whole spiral feeds on something: credit, suckers, etc. The rational thing is to jump off just before the spiral runs out (and being an exponential process, the spiral won’t starve slowly but will crash hard—it won’t be that the banks are demanding somewhat higher interest rates for tulip-backed loans, but that there won’t be any at all). Of course, the other people are reasoning the same way, so they will be looking for the jump-off too; since one of the things the spiral is feeding on is you, your jump will contribute to the crash.
But what sparks you to think that the crash is about to occur (and cause a self-fulfilling prophecy)? Could be some exogenous event like a war or terrorist attack, but there must be one sooner or later: there are only so many tulips to buy & sell and investors are only willing to hold tulips for so long, they want to cash out at some point, but for there to be a seller, there must be a buyer...
If you can calculate this limit, then you know when you must jump off before, and so does everyone else who isn’t a fool, and you become a pack of penguins inching nervously to the edge, wondering who the first one shoved over will be to test the water for killer whales. At that point, a crash is only logical. The upper limit for bubbles is where not enough people can afford to buy the good or to hold the good; the lower limit is where the good is unfairly priced in the sense that it can be diverted to some other use (eg. we can imagine the US dollar depreciating only so far, because if a dollar is cheap enough, we could start buying it in bulk, shredding it, and turning it into fertilizer or linen or something).
I don’t know if this helps you, but it’s the way I see it.
In reality there are smart penguins and dumb penguins and penguin news papers. The professional penguins will tell other penguins how great it has been going so they can get out before the ledge breaks of and they all fall into the water.
To realize those booked earnings you have to sell without causing the crash, so you have to setup potential buyers first. That is why I consider articles about investing into something in major papers the last warning before the crash. When I read that the only smart thing to do, is to invest into … I know not too.