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Price bubbles and behavioural economics

If you have followed the news in recent years, you will have heard of ‘bubbles’, which have attracted a lot of attention since the financial crisis. What are they? And what’s the big deal? Jonny Rae investigates

bubbles, house prices, price mechanism, behavioural economics

To understand bubbles, we must first get to grips with the concept of an ‘efficient’ market. In an efficient market, the price of an asset reflects its true, or intrinsic, value. The asset can be anything, but the idea is most commonly understood in the context of stocks and shares.

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