Bubbles Everywhere in Human Affairs
Swiss Finance Institute; ETH Zürich - Department of Management, Technology, and Economics (D-MTEC)
May 19, 2010
Swiss Finance Institute Research Paper No. 10-16
We review the “social bubble” hypothesis, which holds that strong social interactions between enthusiastic supporters of new ventures weave a network of reinforcing feedbacks that lead to a widespread endorsement and extraordinary commitment by those involved in the projects, beyond what would be rationalized by a standard cost-benefit analysis in the presence of extraordinary uncertainties and risks. Starting with analyses of previous bubbles, in particular the famous “Tulip mania”, the social bubble hypothesis is illustrated by the example of the Apollo project. The social bubble hypothesis suggests novel mechanisms to catalyze longterm investments, innovations and risk-taking by the private sector, which otherwise would not be supported.
Number of Pages in PDF File: 24
Keywords: social bubbles, innovation, positive feedbacks, financial bubbles, tulip mania, Apollo program
JEL Classification: O33, O43, G12
Date posted: May 19, 2010
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