bubble

A bubble in economics refers to a situation where asset prices rise rapidly and unsustainably, driven by speculation rather than the asset's intrinsic value. This often occurs when investor confidence, or "irrational exuberance," leads to a belief that prices will continue to climb indefinitely.1

A prominent example is the dot-com bubble of 1995–2000. During this period, the stock market saw dramatic increases in the valuations of internet and technology companies, many of which had unrealistic business models and little to no profitability. The Nasdaq Composite index surged, with investors pouring money into startups, leading to inflated share prices. The bubble burst in 2000 when the U.S. Federal Reserve increased interest rates, triggering a sell-off and a significant market crash.1

Another historical example is the Dutch Tulip Mania in the 17th century, where prices for tulip bulbs soared to exorbitant levels before collapsing, leaving many investors in financial ruin. Both instances illustrate the greater fool theory, where assets are bought with the expectation that someone else will pay an even higher price.2