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What is the Max Stupid point?
Note
A “Max Stupid” moment refers to a period of extreme irrationality in financial markets, where asset prices are driven by hype, panic, or speculation.
The first recorded speculative bubble that is generally bring up is the “Tulipmania”, a 3-year period from 1634 to 1637 where allegedly tulip prices skyrocketed to a point where 5 hectares of land were offered for a Semper Augustus bulb. Mackay, the author which presented this anecdote, also claimed that Dutch commerce suffered a severe shock after the price crashes. Even though the prices were high, there was no sign of economic distress. This version actually originates from a chain of hearsay originating from the Dialogues between Waermondt and Gaergoedt, three anonymous pamphlets printed between February and May, 1637 that satirized the folly of tulip mania.
High prices and recorded trading occurred only for the rare bulbs, while common bulbs began figuring only in November 1636. The tulip speculation collapsed after the first week of February 1637 and there was no economic distress since no significant agricultural resources were devoted: the timing did not permit that. But the prices drop are real, even before the peak, in January 1637, the price decline is remarkable. Prices fall down to levels of 1 percent to 0.005 percent of their January 1637 values in a century (Table 1). So only the last month of the speculation, during which common bulb prices increased rapidly and crashed, remains as a potential bubble @garberTulipmania1989.
But the point of this post is not to analyse if the tulipmania is a bubble or not. Is it max stupid? Definitely yes.
Another more recent example is the Dot Com Bubble, and surely more fitting to our current situation. While the tulip mania was the trade of “useless” assets, this was different. A new technology that promised to (and actually did) revolutionize the world emerged and endless IPOs of dot-com firms emerged, even if they didn’t use any web tech or the business model was not viable. As a result the Nasdaq index exploded, rising 86% in 1999 alone. Then the bubble imploded: the Nasdaq index fell of 77% from its peak and most of the dot-com firms declared bankruptcy. Sure, someone (like Amazon) survived and became the biggest firms in the world, but 52% of the total companies did not survive the burst and many of the surviving ones were at much lower valuations.
Like in these two examples, the events usually follow this graph, which represent valuation over the time with different events and phases.
After public attention the enthusiasm builds up until it reaches a delusion point, where the realization that it might be overhyped begins. It happened with tulips, it happened with the internet, will it happen also with artificial intelligence?
AI and Max Stupid
As you probably know AI is an umbrella term for different applications that mimic human behaviour, ranging from the K Nearest Neighbor to the modern Machine Learning. To avoid confusion, in this article I refer as AI (or GenAI) specifically to LLMs.
[todo: brief history of ai] After ChatGPT launch in October 2023, AI got extensive media attention, and suddenly everyone knew what AI was. It has been welcomed with both enthusiasm and skepticism by the general public, and overwhelming enthusiasm by businessmen, with the promise of cutting down costs. Following the media attention event, many companies, startups and individuals started using the AI keyword in everything, similar to what happened in the Dot Com bubble. The phenomenon has got its own name, AI washing. Many brands, like Coca Cola, Zara and McDonald, followed this trend, adding to countless meaningless startups and products which do not add any value for the consumer and where the role of AI is practically zero. I feel like we may be just after the max stupid moment in AI. The technology is real and can enable many more innovations, like the Internet did, but the limitations and the use cases now are more clear, and the public begins to know too, or at least, be skeptical about false promises. I can see it also in myself: I treat AI as a marketing buzzword, until I see that the product actually uses it. My pattern recognition scheme has now began to see pretentious AI marketing stunts and discard them immediately, I don’t even get interested, and I feel like many more people like me do the same. I hope a new AI winter never comes back, now the technology is usable and very real, so maybe the capitulation phase will never happen. But if history thought us anything, maybe it will.