Leveraging investments based on irrational expectations:

Question

Quizplus · Accepted Answer

Leveraging investments based on irrational expectations can exacerbate financial crises, as was seen in the 2008 financial crisis where the use of leverage and irrational expectations led to the collapse of many financial institutions. While irrational expectations may initially lead to financial bubbles, these bubbles will eventually burst and lead to a crisis when investors realize the overvaluation of assets. The success of companies like Lehman Brothers cannot be attributed to leveraging investments based on irrational expectations alone, as there were many factors that led to their collapse.

Leveraging Investments Based on Irrational Expectations