Transformations  in
Business & Economics

The Price Bubble Mechanism
Waldemar Tyc

ABSTRACT. The article presents a discourse on the mechanism by which price bubbles emerge and burst. The author has assumed that interpretation and definition of the price bubble morphology depends on identifying the synergic effect of individual actions. In his opinion, the descriptive model of defining the price bubble phenomenon is not essentially useful since it does not reach the core of this problem. Therefore it seems necessary to interpret the price bubble diversity through identifying the causes of their appearance and vaporisation as well as the nature of their inter-relationships, including any feedbacks.

The useful research instruments proved to be the construction of idealized models of price bubble rise and collapse as well as a ‘reverse bubble’ model. It was assumed that the interpretation and definition of nomological variations between price bubbles requires discarding some basic assumptions of the orthodox economic theory. The causes of price bubble occurrence have been classified into four main groups, based on human choice constraints, namely the material, economic, institutional and psychological constraints.

KEYWORDS: price bubbles, ‘reverse’ bubble, nomological interpretation, metaphysics of value, soft / hard financing, asymmetry of information, limited rationality, temptation of abuse and moral hazard, rational choice, rational ignorance, behavioural financing, relationships of grounding and founding, causative determination, functional determination, functional structure, side effects of human actions, deductive-nomological (DN) model, idealization models.

JEL classification: B41, D03, D53, D82, D84, E37, G01, G02.