The Role of Beliefs in the Formation of Speculative Bubbles

The popular narrative blamed the pilot for over-correcting, but really the passengers were having a huge party up back and making his life difficult. I suspect believes actually play a larger role in asset booms and busts than the supply of credit. There was definitely an assumption that the more debt you had, don't worry about debt because we've still got a fair bit of inflation around. Debt's set in nominal terms. It will sort of wither away gradually. That belief hasn't returned. Australian corporate sector has been pretty well disciplined since. Was that an irrational belief? It certainly was wrong once everyone started doing it. So there's a fallacy of composition? Yes, absolutely.