A lot of people in the business and finance world, who economic theory says should be the ones who are best at being very rational and driven by profits, are behaving in odd ways. Staggering amounts of money get spent on schemes that seem to have no realistic prospect of turning a profit. It's easiest to point at things like crypto rug pulls and NFT's, here, but that's because these are a few years old now. You can probably think of more recent examples of what appears to be "irrational exuberance".
The economic analysis of this tends to follow one of two patterns:
1) this is not as irrational as it appears (e.g. the justifications of NFT's as analogous to baseball cards or other historical collectibles, like those made sense)
2) this is irrational, but that's just because humans are sometimes irrational, just like smart people sometimes making dumb choices in their personal lives, and obviously if these people were even smarter or more capable they would not do this; in any case, the market will punish their irrationality
I would like to propose a third theory, which asserts not only that the behavior which appears to be irrational, is in fact irrational, but it is not a "mistake" but rather a systemic feature of the current system. But first, a small detour into biology.
Famously, Charles Darwin found the peacock's large and colorful tails to be a worrying mystery at first. The explanation that he eventually arrived at, was that this kind of extravagant display (quite common in bird species, usually on the part of the male, but found elsewhere as well) is not the result of natural selection (aka "survival of the fittest"), but rather the result of sexual selection. Males are showy because they need to attract the attention of the females in order to pass on their genes.
This idea was rejected by Darwin's partner in the discovery of evolution by natural selection, Alfred Russell Wallace, and by most other biologists of that time. Prior to the "modern synthesis" in the early 20th century (when scientists took Darwin and Wallace's ideas and fused them with Gregor Mendel's ideas on genetics), sexual selection was ignored or discounted. The scientist now most associated with the theory of sexual selection (aside from Darwin himself) is Ronald Fisher, who published in 1930 his book "The Genetical Theory of Natural Selection".
wikipedia article on Fisherian Runaway
There are many details, but the essence is that evolution can experience a "runaway" (like peacocks developing ridiculously oversized and colorful tails) when:
1) the female gets to select which male to mate with, but the males will mate with any female that allows it
2) she has a preference (perhaps small at first) for a particular trait (e.g. showy tail feathers), even though it may not confer any real advantage
3) because of (2), males with more of that particular trait (e.g. bigger or brighter tail feathers) pass on their genes more than those without it (at first, perhaps only slightly more often, because the females have only a slight preference for it)
4) because of (3), females that pick that showy trait will have sons who pass on their genes to more granchildren, whereas females who don't go for the showy trait will have sons who don't pass on their genes as well. Thus, females who have a greater preference for the showy trait will pass on their genes better, even though the trait itself is not useful
5) continue with this for a few generations, and you get males who have absurdly showy tail feathers, and females who greatly prefer this, and all of it even though the showy tail feathers do not convey any other advantage, and in fact make it harder to fly
The reaction of biologists to this logic, even down to such prominent living biologists as Richard Dawkins, is intriguing. Essentially, thinkers such as Dawkins refuse to believe that the female's preference is for no good reason; they posit that they look for males with showy tail feathers, because it is a marker of healthy genes generally (because a sickly or malnourished male could not muster such a display). It bears more than a little resemblance to the economists mentioned above, who cannot believe that irrational behavior not only exists in a market economy, but exists for no good reason, and is even encouraged by it.
The best rebuttal of this that I have seen, is that there are all kinds of other "handicaps" which the male could have, which would do an equally good job of demonstrating how healthy they are (because they can survive despite it). Peacocks evolve huge, colorful tail feathers which make it harder to fly or evade predators, but they don't evolve an instinct to pull out their own feathers, or chew off a leg. The showy traits of males tend to be one of a few types: bright colors, singing, or elaborate patterns of movement that could easily be called "dancing".
The traits that males display, and females prefer, are not just anything that demonstrates healthy genes. They are traits that are very, very attention-grabbing. Many species that are examples of a Fisherian runaway, such as the African long-tailed widowbird or the Gunnison sage grouse, have a breeding pattern in which nearly all females will reproduce, but only a few males will. Finding a monogamous, or even usually-monogamous species that exhibits such a runaway evolutionary pattern, is extremely difficult (I haven't found even one yet, although I'm no expert).
Now, I don't doubt that the female is trying to select a healthy male, i.e. one with good genes. However, if there are many males to choose from, then it stands to reason that there will be more than a few "good enough" males to choose from. All of those males, after all, survived well enough to show up, healthy, for breeding season. There are many traits that would be deal-breakers, but that doesn't mean the female actually has the ability to tell who has the best genes, only that she can reject any that are not good enough to show up looking healthy. Then, from those remaining, she has to pick one. Which one will she pick?
The one who is best at getting her attention, especially at the moment when she decides it is time to pick.
Now if it's one of those species that pair up, and stay together (at least for that season), then the "runaway" doesn't happen, because even the males with more sensible tail feathers (or whatever) will manage to pass on their genes. Also, females who pick the male with the ridiculously showy tail feathers might find that he doesn't help to gather food for the young, whereas a male who is just moderately showy will be more likely to help feed those young (because he doesn't have other females distracting him all the time). Thus, while it's still probably important not to be the absolute drabbest male (in case there are 101 males and 99 females in the area that year), it isn't important to be the absolute showiest. Among monogamous species, you don't tend to get peacock feathers, or other ridiculously showy males. You also don't get them in social insects (where the queen female mates with many males, and lays eggs with many of them as fathers), or in species where the physically dominant male has a harem (since after he's run off or killed all of the other adult males, he is automatically the showiest).
There's a lot more that could be said about the biology of Fisherian runaways, but for our purposes, it is now time to return to how our economy works. That is, how the modern "attention economy" works.
Some economies are local. The bank (or rich person) with money to invest, more or less has to pick from the local businesses (for legal or technological or other reasons). That means that they can evaluate them all. They aren't necessarily perfect at evaluating them, but they can at least try. The fellow with the business plan that makes sense to you, is the one you should probably invest in, because it's more likely to turn a profit and then pay your money back with interest instead of defaulting. This is the equivalent of the female bird who needs to find a mate that will spend his time trying to get food for the young, rather than constantly vying for the attention of every female that passes by.
Now imagine a larger economy, with more options. At some point, it becomes functionally impossible to evaluate them all. Even if you did, it becomes impossible to invest in all of the ones that seem to be likely to turn a profit, because you only have so much money. So, among the potential good investments, you choose the one that, for some reason or other (perhaps attention-grabbing behavior by the founder) grabs your attention.
This means that founders will tend to be attention-grabbing sorts, but it can go further than that. Founders tend to be talked about, and new prospective business founders tend to imitate previous successful founders (e.g. Elizabeth Holmes of Theranos imitating Apple's Steve Jobs). So, founders will become more and more attention-grabbing. But, what mechanism would make the investors (equivalent to female birds in our analogy) ever-more-likely to choose based on attention-grabbing behavior?
A winner-take-all market.
Or at least, one where there are very few winners, and they take far more than the rest. You could expect the winners to be, like the peacock, devoting a good bit of resources to being attention grabbing rather than practical (that is, profitable). Still, we might have expected that we would at least have investors picking from among those potential investments which are at least plausibly profitable. Somehow, we have gone further even than the peacock, and we have investors picking companies that have no real prospect of becoming profitable. Why?
Unfortunately, we have entered, several years back, into an even weirder regime, where the definition of success is to get lots of investors (rather than, say, to make a profit). In a very low-interest-rate environment, the ability to take on lots of investors was the only thing necessary to get lots of money, since if your debt came due and you hadn't actually made any profit you could just take on more debt, at very little interest. Moreover, once your stock is heading to the moon, you can issue stock to get money, and issuing stock is more or less free in most situations. You can even use the high value of your stock as collateral to take out more (very low interest) loans. It was, for a time, a near infinite money-printing machine, especially since the very fact that you had gotten big investments made others eager to invest in you.
Crucially, even if absolutely all of the investors knew that this was more or less an uncoordinated pump-and-dump, as long as their greed was greater than their fear, it would continue. Attention-grabbing got you investors, investors got you money, money got you attention. "Juice" that cycle occasionally with ridiculous acts in public, and you can keep it going indefinitely. If, by "indefinitely" you mean "without a known end", rather than "unending". Because eventually, the low interest rate period has to come to an end.
When it does, people with money to invest have another option; they can just buy Treasury bills (or the equivalent), and it will still make more interest than the inflation rate. This does not totally break the incentives to attention-getting behavior, but it does mean that even the most attention-grabbing CEO may not be able to keep the investment money flowing in. And once that money is not flowing in, it will not be long before it starts to flow out.
This is roughly the equivalent of a species shifting from one in which the female does all of the rearing of young, to one in which it takes the efforts of two adults to successfully bring them to maturity (perhaps a change in climate such as an Ice Age made it no longer reliable for a single mother to feed the young on her own). If this ever happens among bird species, I am not aware of it, although I suppose it might be difficult for such a thing to be reliably detected in the fossil record. But regardless of what happens in biology, it certainly happens that economies transition from investors-seeking-places-to-invest, to founders-desparate-for-investors.
When this happens, and the change could be sudden, all of that attention-grabbing behavior can suddenly become a liability. If you believe that the economy is challenging, and wherever you invest your money, they will need to get by without additional investments for an extended time, then you don't want to place your funds with the profligrate founder whose spotlight-grabbing shenanigans were looked upon so favorably not long ago.
If this flip happens on a frequent basis, then the swings from excess-to-austerity will be more moderate. But, if you go a long time without an investment drought, then you can end up with an entire generation of founders and CEOs who have been selected for their ability to get people's attention, not their ability to make good business decisions. They are like peacocks when an invasive species of predator arrives, and those showy feathers that grab attention and slow down your escape, are now the opposite of what you want. Moreover, the peahens who fall for the showiest tail feathers, may entrust their genes to a bunch of sons who get eaten before they can reproduce.
The fallout, may be brutal. The survivors in an environment shift like this, will be those businesses that never got especially good at attracting investors, and therefore they remained able to turn a profit and fund themselves. The longer the "summer" of low interest rates, the more difficulty most founders (and most investors) will find the transition to an economic "winter" to be. We are, I think, currently in late autumn.