A typical expectation is a linear trend. In general, people extrapolate a trend as a straight line. Once a direction is established, it seems to be human nature that the belief is a trend will continue indefinitely.
This belief is surprised by changes in direction but not as much by intensity. A strong trend can quickly become a bubble that explodes. Bubbles are not just financial but can be in many social areas such as music, food, and ideas.
The most examined bubbles are financial. These date back to Roman times and include the infamous tulip mania in the mid-1600s, the South Sea Company bubble in mid-1700s, and the modern "dot-com" bubble of 2000.
Bubbles seem to be a natural outcome. Random variations in any market may be misinterpreted as changes in direction and then accepted as a permanent change. Small movements grow into big changes if the difference pleases people.
Many questions arise:
- are bubbles good or bad?
- can bubbles be predicted?
- are bubbles independent, or does one bubble affect later bubbles?
- is there a mathematical model of bubbles?
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