Re: Tech Hype

From: Dani Eder (
Date: Thu Apr 20 2006 - 06:03:00 MDT

--- micah glasser <> wrote:

> The thesis we are debating, I think, can best be
> summed up as: hype is a bad
> thing because it leads to overvalued markets and
> "waste investments" ;

The Gartner Group, who are tech analysts, have a
theory of the "hype cycle" which developing
technologies often go through:

To create investor interest and raise capital, new
technologies are often hyped on purpose.

When the scale of capital involved is big enough,
it can spill over into the "Madness of Crowds"
phenomenon (i.e. investment "bubbles").

The internet/ bubble is only one in a long
series of events where some asset gets greatly
overvalued, then comes back to normal. The tulip
craze in Holland is one of the earliest documented,
and coastal real estate is the one in progress
right now:

Home prices have started to drop in the 4th quater
of 2005:$FILE/REL05Q4T.pdf

These bubbles happen because people see someone
else making money in X, and they think they can
make money in X too. So you get people buying X
faster then the supply of X for sale can support,
and prices rise. Eventually you run out of buyers,
and/or the supply of X has been increased due to
high prices. Now you have more supply than demand,
and the price drops again.

A rational observer would question why the median
home in Danville, IL sells for 2.9 times per capita
income, and the one in San Francisco sell for 15.2.
But most people aren't that rational.


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