> … showing me a new kind of market failure - where resources can be massively misallocated just because some small class of individuals THINK or HOPE it will result in massive returns.

Technically speaking, this is not a market failure. [1] Why? Per the comment above, it is the individuals that are acting irrationally, right? The market is acting correctly according to its design and inputs. The market’s price adjustment is rational in response. The response is not necessarily fair to all people, but traditional styles of neoclassical economic analysis deaccentuate common notions of fairness or equality; the main goal is economic efficiency.

I prefer to ask the question: to what degree is some particular market design serving the best interest of its stakeholders and society? In democracies, we have some degree of choice over what we want!

I say all of this as a person who views markets as mechanisms not moral foundations. This distinction is made clear when studying political economic (economics for policy analysis) though I think it sometimes gets overlooked in other settings.

If one wants to explore coordination mechanisms that can handle highly irrational demand spikes, you have to think hard. To some degree, one would have to give up a key aspect of most market systems — the notion of one price set by the idea of “willingness to pay”.

[1] Market failure is a technical term within economics meaning the mechanism itself malfunctions relative to its own efficiency criteria.