According to economist Robert Shiller's theory of 'irrational exuberance,' the dot-com bubble was driven by widespread, optimistic beliefs about the future of high-tech firms. These beliefs had two major, concurrent effects: they pushed share prices on the NASDAQ index to unsustainable levels and simultaneously spurred excessive investment in new machinery and IT equipment within the high-tech sector. The eventual collapse of this confidence triggered both a stock market crash and a severe downturn in investment.

Irrational Exuberance and the Dot-Com Investment Cycle

Robert Shiller is an American economist who provided a prominent explanation for the dot-com bubble. He argued that the NASDAQ index was driven to unsustainable heights by what he termed 'irrational exuberance' among investors.

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