Bubbles arise from positive feedback mechanisms from "summary" of Why Stock Markets Crash by Didier Sornette
Bubbles are a fascinating phenomenon that can arise in various markets, from stocks to real estate. These bubbles are not random events, but rather the result of positive feedback mechanisms at play. Positive feedback mechanisms are self-reinforcing processes that amplify small perturbations into large movements. In the context of financial markets, positive feedback mechanisms can take many forms. For example, as prices of a particular asset start to rise, more investors may become interested in buying, leading to further price increases. This creates a feedback loop where rising prices attract more buyers, causing prices to climb even higher. Another example of a positi...
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