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How to Apply Cascades to Thinking About Bubbles
How do you apply cascades to thinking about bubbles? Okay, well that's a really central question because we think about market bubbles. These are happening in markets where prices are being set. So the Fads are much like the situation where we had fragility, right? You have some shock to the world and now people use their own signals. The cascade is dislodged. But this year possibility that the world might have changed can be enough to dislodge a cascade. It turns out however that if you have subtler models of how capital markets work it turns out that mistaken cascades can rear their ugly heads again.