E.G. the dot com bubble. The 2008 housing market bubble. And the recently talked about NFT bubble.
In: Economics
Everything is worth what it’s purchaser will pay for, but sometimes people value things based off of incorrect (or even irrational) views.
A bubble ends up being the result of a large amount of people overvaluing a particular thing (or group of interconnected things). When the degree of this overvaluation is exposed, it leads to a significant correction in the market, which can happen very very quickly.
So, for example, the 2008 financial crisis was, fundamentally, caused by people overvaluing Mortgage Backed Securities (MBS). When it started to be understood that MBS-based investment was horrifyingly flawed, everyone rushed to offload all of their suddenly-vulnerable investments, causing the bubble to pop and prices to crash.
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