nied by high trading volume. The behavioral view of bubbles finds support in experimental
The paper proceeds as follows. After a cursory summary of the most famous bubble episodes
and a brief description of the classic model, the paper reviews the new generation of rational
and behavioral models of bubbles. The paper concludes with how the insights from these new
models help understand the evolution of the recent subprime mortgage bubble.
This section provides, in chronological order, a brief overview of famous examples of bubbles
observed throughout history. This list is, obviously, incomplete, and for a more complete de-
scription of bubbles through history the reader can refer to, for example,
Perhaps the earliest known example is the tulip bubble in Holland that started in 1634 and
burst in February 1637. Amid the general fascination with rare species of tulips among the
Dutch, prices on rare tulip bulbs rose, attracting the attention of speculators. Since the supply
of rare bulbs was severely limited in the short run, and demand sky-rocketed due to the in-
flux of speculators, prices rose rapidly amid heavy trading. At the bubble’s peak, a single tulip
bulb sold for an equivalent of $60,000 today.