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What are bubbles?

Social Capital (Silicon Valley VC firm) recently published an interesting series on (economic) bubbles: what they are, how they form, when they are useful, and so on. It’s worth a read – you can start here.

Here’s a taste:

“Prices in markets turn out to have two roles: they tell us something about the past, and they influence our actions — and therefore, their own price — in the future. Sometimes, in a big way, this dual role makes a particular asset class — tulip bulbs, railway stock, Canadian real estate, a digital token — become attractive solely because its price is going up. George Soros characterized and mastered this phenomenon, known as Reflexivity: when our views and our actions reinforce each other. If an expensive price means that something is high quality or otherwise attractive, we will tend to buy more of it and drive the price higher, independently of whether or not the thing is any good. It’s true for sunglasses, it’s true for ICOs, and a whole lot more.”

For obvious reasons I couldn’t resist posting this quote. Notwithstanding the shot at Canadian real estate, bubbles are a fascinating topic. They happen time and time again because we are greedy.

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