ECON 319 Lecture Notes - Lecture 12: Economic Bubble, Feedback, Cognitive Dissonance

• School: McGill University
• Department: Economics
• Course: ECON 319
• Professor: Christopher Ragan

Document Summary

Hiller, chapter (cid:1006)(cid:1010) (cid:894)(cid:862) pe(cid:272)ulati(cid:448)e bu(cid:271)(cid:271)les a(cid:374)d their costs to o(cid:272)iet(cid:455)(cid:863)(cid:895), Finance and the good society, princeton university press 2012. Economic history is filled with stories of speculative bubbles, their bursting, and the resultant economic dislocation. [a speculative bubble is a situation in which news of price increases spurs investor enthusiasm, (cid:449)hi(cid:272)h spreads (cid:271)(cid:455) ps(cid:455)(cid:272)hologi(cid:272)al (cid:272)o(cid:374)tagio(cid:374) fro(cid:373) perso(cid:374) to perso(cid:374) . The process amplifies stories that might justify the price increases and brings in a larger and larger class of investors. These investors might be doubtful, but are still dra(cid:449)(cid:374) i(cid:374) through e(cid:374)(cid:448)(cid:455) of others" su(cid:272)(cid:272)esses a(cid:374)d partl(cid:455) through a ga(cid:373)(cid:271)lers" e(cid:454)(cid:272)ite(cid:373)e(cid:374)t] Definition contains many psychological/emotional terms (enthusiasm, psychological (cid:272)o(cid:374)tagio(cid:374), dou(cid:271)ts, e(cid:374)(cid:448)(cid:455), ga(cid:373)(cid:271)ler"s e(cid:454)(cid:272)ite(cid:373)e(cid:374)t(cid:895) Bubbles are a phenomenon that may be compared to social mental illness: not all bubbles are identical, should define a list of symptoms of a bubble. Speculative bubble different from mental illness because it is a social phenomenon.