The paradox that makes people buy expensive products instead of cheap ones is deeply tied to market psychology and behavioral biases, such as fear and social validation. Here are the main factors:
1. Fear of Missing Out (FOMO)
When an asset’s price rises, attention around it increases. People see positive news, other investors making profits, and end up believing that they “can’t miss out”. This emotion overrides logic, and they buy even though the asset has already appreciated, believing that the gains will continue.
2. Social Validation and Conformity
People are more confident about investing when they see a crowd doing the same. An asset that is rising rapidly seems “safe” because there is an implicit consensus that “if everyone is buying it, it must be good.” In contrast, cheap assets, which are often ignored by the market, do not have this same appeal.
3. Confirmation Bias
Investors look for information that reinforces their belief that the price will continue to rise. When something is expensive, it's easier to find upbeat news and analysis, which further encourages people to buy.
4. Risk Aversion in Situations of Uncertainty
When something is cheap, it is often associated with uncertainty or problems (such as recent declines or lack of popularity). The investor, afraid of losing money, avoids “taking risks”. But when the price is high, there seems to be less uncertainty, even though the real risk is greater.
5. Illusion of Trend
People have a hard time imagining trend reversals. If the price is rising, they believe it will continue to rise. If it is falling, they assume it could fall further, and avoid buying, even when the price is attractive.
6. Speculation and Greed
When something expensive is rising, many people buy it not because they believe in the real value of the asset, but to try to sell it at an even higher price. This is the famous “speculative bubble”, where short-term behavior overrides rational analysis.
Solution:
The Paradox
The key is to discipline your emotions, take a long-term approach and understand the fundamentals of an asset. Buying when it’s cheap, during times of low attention or pessimism, can be the key to unlocking real value — but it takes courage and patience.