Chapter 2 of Pompian’s book is basically a history lesson. But here’s the thing: it is a surprisingly interesting one. Because when you trace where behavioral finance came from, you realize that humans have been making the same stupid money mistakes for centuries.
Chapter 2 of A Random Walk Down Wall Street is basically a horror movie. Except the monsters are regular people losing their minds over tulip bulbs, fake companies, and stocks they couldn’t afford. Malkiel walks us through three of history’s wildest financial bubbles, and the pattern is always the same. People get greedy, prices go insane, and then everything falls apart.
This is the most dramatic chapter in the entire book. Bubbles inflate, crashes wipe out fortunes, and panic replaces logic. If you ever watched a stock chart go vertical and wondered “how does this end?”, Harris answers that question here. Spoiler: badly for whoever is holding the bag last.