zundel

Saturday 347

Bubbles happen

Filed under: Economy — zundel @ am

A very good and brief article explaining how bubbles happen:

Pop Psychology” by Virginia Postrel in The Atlantic 2008-12

in laboratory markets that mimic the production of goods and services, prices rise and fall as economic theory predicts, reaching a neat equilibrium where supply meets demand.

First, beware of markets with too much cash chasing too few good deals.

But sometimes the process “can go bananas” and create a bubble, usually when good information is scarce and people follow leaders who don’t in fact know much.

And when you have a bubble, you will get a crash.

[from Arts & Letters Daily]

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