> When the rate of return is high, savers can achieve their goals by buying, holding, and harvesting the resulting cash flow. When it is low, they must turn to other strategies: leverage, arbitrage, momentum trading, more sophisticated quant trading, and “beauty contest trading“: betting on what others will find popular, for (arguably) extra-economic reasons.

I don't think this is how people behave.

I think collective behaviour can be better explained by people discounting the painful lessons of previous downturns the more the longer prosperity lasts. Our brains are wired this way, unfortunately and it requires a conscious effort to objectively (if it can be done at all) take into account risks of serious and long lasting financial winter.

Most people don't have the self discipline to do this. They kinda know about it but then they see other people making shitload of money in risky "investments" and our greedy primate brains take over.