Definition
Bubbles form when positive feedback loops of rising prices, media attention, FOMO, and speculative buying push assets far above fundamental value. Classic bubble stages (per Minsky/Kindleberger): displacement, boom, euphoria, profit-taking, and panic. Historical examples include tulip mania (1637), dot-com (2000), housing (2008), and various crypto bubbles. Bubbles are easier to identify in hindsight than in real-time.
lightbulb Example
The dot-com bubble saw the Nasdaq rise 400% from 1995 to 2000, with companies worth billions despite having no revenue. When the bubble burst, the Nasdaq fell 78% and took 15 years to recover its 2000 peak.
verified_user Key Points
- Prices dramatically exceed intrinsic values
- Stages: displacement → boom → euphoria → panic
- Driven by FOMO, herding, and speculation
- Easier to identify in hindsight than real-time