The greater fool theory contributes to the formation of asset bubbles.
Features of the greater fool theory:
(1) an asset becomes popular or has a following
(2) the asset continues to rise in price over time, sometimes years or decades
(3) the amount being paid for the asset exceeds its intrinsic value
(4) a person buying the asset at an inflated price believes that it can be sold for a profit to "a greater fool"
Eventually there is a sell-off and the market collapses
Examples:
(1) Chinese real estate in the early 21st century
(2) possibly cryptocurrency
