The Psychology of Bubbles: A Comparison Between the 1920s and 1990s Bull Markets
Zacharia “Zaki” Mir
13/10/2026
Even though nearly seven decades separated the Stock Market Crash of 1929 and the 2000's dot-com bubble, the psychological and economic structure underlying both market bubbles is strikingly similar. Both eras followed painful debt crises and wars where the United States emerged victorious, setting the stage for an optimistic view of national progress and personal success. This speculative optimism resulted in underestimated perceptions of risk that allowed for unhealthy investment decisions. Investors developed a sense of overconfidence, while bystanders felt compelled to enter the rising market, exemplifying a fear of missing out mentality that triggered herding behavior. The astonishing growth within the market caused the Federal Reserve to tighten rates, raising interest expenses and leading investors and lenders to withdraw their risky positions. Declining asset prices transformed the same forces that inflated the bubble into a self-reinforcing negative bubble. In both eras, speculative optimism drove security prices far beyond fundamental values, eventually culminating in severe market losses and broader economic decline.