A Bubble is an economic cycle that is characterized by the rapid escalation of market value, particularly in the price of assets. This fast inflation is followed by a quick decrease in value, or a contraction, that is sometimes referred to as a "crash" or a "bubble burst." The collapse of prices can be dramatic and cause widespread financial distress. For example, the bursting of the dot-com bubble in 2000 resulted in more than $5 trillion in losses for investors around the world.Bubbles are often fueled by speculation—the buying and selling of assets based on expectations about future price increases rather than on their underlying fundamentals. When buyers become overly optimistic about an asset's prospects and bid up its price beyond what it's worth, this can create a self-fulfilling prophecy as other investors jump on board, pushing prices even higher. At some point though, reality sets in and buyers flee en masse, sending prices crashing down again.There are several potential causes for bubbles: low interest rates (which make it cheap to borrow money), easy access to credit (which allows people to buy more assets than they otherwise could), irrational exuberance (a psychological phenomenon that leads people to overestimate an asset's worth), and herd behavior (when investors follow each other's lead without thinking critically). Bubbles can also form when regulators allow banks and other institutions to take on too much risk or when policymakers fail to rein them in once they've gotten out of hand.
