5min chapter

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Housing Bubble Week Epilogue: Not All Bubbles Are Created Equal - Vernon Smith

The Joe Walker Podcast

CHAPTER

Why Do Housing Bubbles Crash?

Housing is a complex system and it's very hard to predict because the volatility, the variation can be so great. Adam Smith argues that from any kind of given level of reasonable comfort, we always have much more to lose than to gain. And he uses this then to explain what has also been discovered in experimental economics, the asymmetry between gains and losses. This may help to explain why these crashes can be so rapid and can occur quickly - but they don't always work that way.

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