Mainstream economic models cannot explain when bubbles start or stop

Evidence

As it was put by my former colleague, Markus Brunnermeier … “We do not have many convincing models that explain when and why bubbles start.” I would add that we also don’t know very much about how bubbles stop, either. — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 519

Categorization

• QUESTION: The admission that models can’t explain bubble dynamics is an opening for investigating what actually drove the crisis — Mirowski implies the answer lies in market design, not theory.
• XREF: connects to: Finance’s profits came from three interlinked asset bubbles, not efficient markets — Mark Blyth, Austerity: The History of a Dangerous…, 625; The efficient-markets hypothesis erased discussion of bubbles and speculation — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 749; Efficient-market theory struggles more to explain sudden rises than crashes — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 861 (+6 more)

Broader Connections

• Efficient-market theory struggles more to explain sudden rises than crashes #expands (0.82) — Donald MacKenzie, An Engine, Not a Camera, 861
• Efficient market theory could not imagine internally-generated systemic crisis #corroborates (0.80) — Mark Blyth, Austerity, 130
• The efficient-markets hypothesis erased discussion of bubbles and speculation #corroborates (0.78) — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 749
• Orthodox economics models structurally excluded the possibility of major crises #corroborates (0.78) — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 491
• A surge levy on capital flows can deflate speculatively-driven emerging-market bubbles. #responds-to (0.72) — Yanis Varoufakis, Technofeudalism, 731