In finance, what is the greater fool theory?

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This refers to a theory of asset pricing which states that the price of any financial asset is determined purely by what its buyers are willing to pay for it. In other words, the price of an asset has nothing to do with its underlying fundamental value but depends only on the emotions of buyers. The greater fool theory is generally used to justify the growth of asset bubbles that are far removed from fundamental value. It applies to various assets like stocks, real estate, etc., where buyers justify the purchase of an extremely overpriced asset under the justification that they will soon be able to sell it at a higher price to other buyers.