Economics of Irrational Exuberance

Readers Question: Is there an economic term for the phenomenon of ignoring (or turning a blind eye to) future risk, assuming that the current situation will prevail?

I refer to the situation we currently see of both borrowers and lenders who are being caught by interest rate rises, having seemingly assumed that interest rates would stay low.

I wrote an essay here - The Economics of Herding and Irrational exuberance

Alan Greenspan helped to immortalise the phrase ‘irrational exuberance’ in a speech in 1996

“But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?” He added that “We as central bankers need not be concerned if a collapsing financial asset bubble does not threaten to impair the real economy, its production, jobs and price stability.”

Source: Irrational exuberance