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Bubbles as mania

a bubble is a form of psychological malfunction. And like mental illness there's a tricky gray area between being really sick and just having a few problems, Mr. Shiller said during a panel discussion at the World Economic Forum in Davos, Switzerland.

The solution: a checklist like psychologists use to determine if someone is suffering from, say, depression. So here is Mr. Shiller's checklist.

  • Sharp increases in the price of an asset like real estate or dot-com shares
  • Great public excitement about said increases
  • An accompanying media frenzy
  • Stories of people earning a lot of money, causing envy among people who aren't
  • Growing interest in the asset class among the general public
  • "New era" theories to justify unprecedented price increases
  • A decline in lending standards

DealBook: Shiller's List: How to Diagnose the Next Bubble
Published: January 27, 2010
Robert J. Shiller, the Nobel-prize winning Yale economist, suggested Wednesday -- a bit whimsically -- that bubbles could be diagnosed using the same methodology psychologists use to diagnose mental illness.


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