The Carbon Tracker Initiative points to an obvious problem: it’s no good having oil you can’t burn. At least if you are a company that sells it.
It follows that a large part of the valuation of the world’s major stock markets is founded on the psychology of the bubble – they are an ‘irrational exuberance’.
But how come people get so duped? An official answer runs like this:
“(1) initial errors in forecasting the future based on the representativeness heuristic; (2) the emergence of excessively rosy forecasts because of overconfidence and excessive extrapolation; (3) the amplification of skewed positive forecasts across a financial market through group polarisation; and finally (4) the resetting of those forecasts to an excessively cautious level in the subsequent market crash.”
But this is merely a description of what people do. There must be a deeper answer. What makes it impossible to step back from the hype? What makes it impossible for people to see the environmental constraints on endless growth?