Bubbles are rarer than you think – and very hard to recognise until it is too late.

Bubbles put the fun into financial history. Who can resist stories about Dutch tulips that were worth more than country estates or the floating of an “undertaking of great advantage but no one to know what it is”?

Economists have long debated whether bubbles can be identified, or indeed stopped, before they can cause widespread damage, as the crisis of 2007-08 did. But spotting them is easier said than done: even tulipmania may have been caused by a quirk in the wording of contracts that meant speculators would, at worst, walk away with only a tiny loss.

Read the full article on The Economist’s web site

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