What do you think?
Rate this book
Bubbles and Crashes: The Boom and Bust of Technological Innovation
“An interesting take on some factors that facilitate the development and bursting of bubbles in technology industries. . . . Highly recommended.” —Choice Financial market bubbles are recurring, often painful, reminders of the costs and benefits of capitalism. While many books have studied financial manias and crises, most fail to compare times of turmoil with times of stability. In Bubbles and Crashes, Brent Goldfarb and David A. Kirsch give us new insights into the causes of speculative booms and busts. They identify a class of assets—major technological innovations—that can, but does not necessarily, produce bubbles. This methodological twist is Only by comparing similar events that sometimes lead to booms and busts can we ascertain the root causes of bubbles. Using a sample of eighty-eight technologies spanning 150 years, Goldfarb and Kirsch find that four factors play a key role in these the degree of uncertainty surrounding a particular innovation; the attentive presence of novice investors; the opportunity to directly invest in companies that specialize in the technology; and whether or not a technology is a good protagonist in a narrative. Goldfarb and Kirsch consider the implications of their analysis for technology bubbles that may be in the works today, offer tools for investors to identify whether a bubble is happening, and propose policy measures that may mitigate the risks associated with future speculative episodes.
294 pages, Kindle Edition
First published February 19, 2019
29 people are currently reading
225 people want to read
Ratings & Reviews
Friends & Following
Create a free account to discover what your friends think of this book!
Community Reviews
Displaying 1 of 1 review
June 14, 2019
This is an extremely ambitious book, a serious and rigorously-conducted research project, presented in easy-to-understand language. In essence, the authors use past events of technological innovations that did and did not give rise to investment bubbles (as they define them) to propose a theory of what makes bubbles more likely and how to identify them in real time. As such, the book is must reading for entrepreneurs, investors, and policy makers, as well as scholars with an interest in financial asset markets.
A distinguishing characteristic of the book is how carefully and how scientifically the authors approach the subject matter. They objectively define a sample of technological innovations, then craft a theory based on observations of the sample, then apply the theory to a new sample. They also make predictions about current potential bubbles. The book carefully notes potential limitations of the data and methodology. Nothing is swept under the rug.
There are many takeaways from the book, but one struck me as particularly compelling because it is clear in retrospect but easy to lose sight of in the moment: If a lot of inexperienced investors are pouring into a sector - think Internet in the 1990s - there's a very good chance that the assets are overvalued. You can easily observe this: are your friends all telling you to buy such-and-such a stock? You may feel intense peer pressure to join them in their folly. You may have FOMO. But you'll likely get the last laugh when the market tanks, even if - and this is important - the sector ultimately proves successful some years later (like the Internet, radio, passenger flight, etc.)
A distinguishing characteristic of the book is how carefully and how scientifically the authors approach the subject matter. They objectively define a sample of technological innovations, then craft a theory based on observations of the sample, then apply the theory to a new sample. They also make predictions about current potential bubbles. The book carefully notes potential limitations of the data and methodology. Nothing is swept under the rug.
There are many takeaways from the book, but one struck me as particularly compelling because it is clear in retrospect but easy to lose sight of in the moment: If a lot of inexperienced investors are pouring into a sector - think Internet in the 1990s - there's a very good chance that the assets are overvalued. You can easily observe this: are your friends all telling you to buy such-and-such a stock? You may feel intense peer pressure to join them in their folly. You may have FOMO. But you'll likely get the last laugh when the market tanks, even if - and this is important - the sector ultimately proves successful some years later (like the Internet, radio, passenger flight, etc.)
Displaying 1 of 1 review