Because people don't learn economics like math. We learn it like a child learns pain. Here are 8 reasons why people keep repeating the same mistakes – even after spectacular meltdowns have occurred:
Each crisis seems “unique” in its own way
In the history books, the year 2008 will be written: “the year of the global economic-financial crisis”. But in 2006, it looked like the year of a “new financial innovation that is driving home prices steadily higher.”
Each cycle comes with a new “wrapper”: tulips, railroads, dot-coms, housing, crypto. But the psychology is the same.
The “railway mania” in Great Britain (1840s), about which little has been written in our country, is a textbook bubble.
What Happened: Railroads were the artificial intelligence of the 1840s: a technology that truly changed the world. Investors poured money into railway companies, and Parliament approved thousands of kilometers of proposed lines.
Share prices rose sharply, then reality hit them hard: the projects were too expensive and the profits too optimistic.
Most people were not hit by the last crisis
The real learners are those who have: lost their jobs, lost their savings, been asked to repay bank loans quickly or had a mortgage that suddenly went underwater.
The lesson: Unless you've been personally affected, the crisis is more of a story than a lesson.
Memory is short, stimuli are immediate
Politicians think about electoral cycles. CEOs think about quarterly earnings. Investors are thinking about this year's returns.
Crises explode quickly – and people are oblivious to the slowly building dangers. The moment the bubble burst always catches them offside.
Success lulls you to sleep and creates overconfidence
After a few good years of success, people stop thinking about the risks and start thinking “Mom, how smart I am”.
Booms don't just inflate prices – they inflate egos.
Winners rewrite history
In a boom, everyone has a brilliant strategy. Influencers praise, the press does the same, a false virtuous circle is created. Then comes the explosion.
After which everyone says that it was something that could not be anticipated. As a rule, it could be. There is no such thing as a free lunch, let's be clear. The rest are stories.
The human brain is not built for secondary risks
We understand many things: storms, famines, bear attacks… We do not naturally understand: leverage, liquidity spiral, contagion, correlated risk and underestimate “low probability, high impact” events.
People want hope more than accuracy
A bubble is basically a social agreement to believe in a beautiful future. And people love beautiful futures as they love beautiful lies.
The system pushes you to take more and more risks
In many areas of finance people keep the rewards when things go well but don't pay the price when things go bad.
So the system pushes people to take more and more risks.
In short: if the bet works: I get the bonus / profit / promotion. If the bet fails: someone else takes the loss (shareholders, taxpayers, employees, customers, “the economy”).
That means “advantage is private, disadvantage is shared.”
A simple example (banking logic): A trader takes big risks.
Year 1: makes a profit of 50 million euros → receives a bonus of 2 million euros
Year 2: loses 200 million euros → is fired, but the bank (or the state) absorbs the damages
So the trader's personal “expected outcome” is a huge advantage if he is lucky and a limited disadvantage if he is unlucky. This is an incentive to keep playing.
