An economic bubble is "trade in high volumes at prices
that are considerably at variance with intrinsic values". It could also be
described as a trade in products or assets with inflated values. While some
economists deny that bubbles occur, the cause of bubbles remains a challenge to
those who are convinced that asset prices often deviate strongly from intrinsic
values. While many explanations have been suggested, it has been recently shown
that bubbles appear even without uncertainty, speculation, or bounded
rationality. It has also been suggested that bubbles might ultimately be caused
by processes of price coordination or emerging social norms.
Because it is often difficult to observe intrinsic values in
real-life markets, bubbles are often conclusively identified only in
retrospect, when a sudden drop in prices appears. Such a drop is known as a
crash or a bubble burst. Both the boom and the burst phases of the bubble are
examples of a positive feedback mechanism, in contrast to the negative feedback
mechanism that determines the equilibrium price under normal market
circumstances. Prices in an economic bubble can fluctuate erratically, and
become impossible to predict from supply and demand alone.