The Greater Fool Theory is the idea that during a market bubble, one can make money by buying overvalued assets and selling them for a profit later because it will always be possible to find someone willing to pay a higher price. Currently, the market is in this phase.
But, the Greater Fool Theory was employed by many businesses in the past. When information was not readily available, companies took advantage of the uninformed customers and made a killing. However, with the ascent of the internet, the number of such people is going down. A lot of information is available, and the customers will soon understand that they are being short-changed.
But rather than facing this reality and creating alternate business models, many enterprises are still betting on the Greater Fool Theory. With websites like policybazaar.com, we can compare a lot of insurance plans against each other. Similarly, it would be impossible for a retailer to charge higher with all the pricing information available on amazon.com.
Levitt and Dubner noted this shift and wrote in their famous book - Freakonomics that the future business of every organization is to create or remove data asymmetry. It is essential to understand its meaning. If we have some information that is not available on the internet, we have a sustainable advantage. This is one way to create a business advantage. The other way is to open up all the information (open source is already doing that) and eliminate the advantage available to a few entities.
Is your business dependent on Greater Fool Theory?
Comments