Economic Bubble is prices driven far above intrinsic value by feedback loops of belief and behavior. It sits in the Cognition dimension (COG) of the Human Behavior Taxonomy™ as element HBT-COG-0258, within the Markets family. The core principle: prices driven far above intrinsic value by feedback loops of belief and behavior. In incentive terms, it matters because it changes the payoff people perceive before they choose — which means it can be designed for, or exploited.
Scientific Definition
Prices driven far above intrinsic value by feedback loops of belief and behavior.
Plain-English Definition
Prices driven far above intrinsic value by feedback loops of belief and behavior.
Feynman Explanation
Bubbles are obvious — in retrospect.
Core Principle
Prices driven far above intrinsic value by feedback loops of belief and behavior.
Mechanisms
Pending editorial review.
Prices driven far above intrinsic value by feedback loops of belief and behavior.
Pending editorial review.
Pending editorial review.
Pending editorial review.
Pending editorial review.
Strategic decisions made at the top of bubbles age very badly.
Inputs (Triggers)
Pending editorial review.
Outputs (Behaviors)
Pending editorial review.
Behavioral Signature
Bubbles are obvious — in retrospect.
Examples
- Dot-com, housing, crypto cycles. Pattern repeats.
- Strategic decisions made at the top of bubbles age very badly.
Pending editorial review.
Original analysis from The Incentives Lab — how this element behaves inside real payoff structures.
Why this element matters to incentive design
The mistake with this element is treating it as irrationality. It is almost always a rational response to a payoff nobody wrote down. The mechanism underneath it is straightforward: prices driven far above intrinsic value by feedback loops of belief and behavior. You can recognize it in the field by its signature: bubbles are obvious — in retrospect. Every element in the Cognition dimension changes the perceived payoff of an action before the action happens, which is exactly where incentive design has leverage.
How it gets exploited
Left undesigned, strategic decisions made at the top of bubbles age very badly. It is amplified whenever strategic decisions made at the top of bubbles age very badly. Inside organizations that shows up as strategic decisions made at the top of bubbles age very badly. The pattern is the same one Goodhart's Law describes: the measurable proxy attracts the effort, and the purpose behind it quietly loses funding.
How the Lab designs around it
The redesign move is to track price-to-fundamentals and the share of buyers buying because price is rising. The leverage is not in explaining the behavior to people. It is in changing what the behavior earns.
Famous Experiments
Pending editorial review.
Design Principles
- Track price-to-fundamentals and the share of buyers buying because price is rising.
Measurement Approaches
Pending editorial review.
Evidence
Pending editorial review.
Pending editorial review.
The Perverse Incentive Lens™
How this behavior is exploited — and how to redesign around it.
- Track price-to-fundamentals and the share of buyers buying because price is rising.
Pending editorial review.
Pending editorial review.
Interactive Mini Network
Click any neighbor to re-center the graph and follow the threads of connection.
Knowledge Graph Neighbors
Auto-linked to the rest of the Human Behavior Taxonomy by family, domain, dimension, and shared keywords.
The rate at which customers (or employees) leave over a period.
The gap between early adopters and the early majority kills most products.
Innovators → early adopters → early majority → late majority → laggards.
Low-end or new-market entrants overtake established incumbents.
Asset prices fully reflect available information; you can't reliably beat the market.
Doing everything right by current customers can kill you.
Customers hire products to do a job in their life.
Aggregating many niche markets equals or exceeds the mainstream.
Beliefs about reality shape the reality.
Technologies grow slowly, then explode, then plateau.
Algorithms show us content that reinforces our existing views.
How will I feel about this in 10 minutes / 10 months / 10 years?
Where Economic Bubble is cited in the corpus
Essays, field guides, and diagnostics from The Incentives Lab that apply this element.
- EssayGoodhart's Law in the Real World
How measurable proxies capture judgment.
- EssayThe Perverse Incentives Hiding in Your KPIs
Cognitive shortcuts turned into scorecards.
- EssayAI Agents Inherit Your Incentives
How this element propagates into automated systems.
- ReferenceThe incentive glossary
Definitions for every mental model, bias, and fallacy in the corpus.
- CourseIncentives 101
The free ten-part primer on reading a payoff structure.
- ReferenceThe Periodic Table of Human Behavior
The full 1,267-element map this page belongs to.
Questions about Economic Bubble
- What is Economic Bubble?
- Economic Bubble is prices driven far above intrinsic value by feedback loops of belief and behavior. It sits in the Cognition dimension (COG) of the Human Behavior Taxonomy™ as element HBT-COG-0258, within the Markets family. The core principle: prices driven far above intrinsic value by feedback loops of belief and behavior. In incentive terms, it matters because it changes the payoff people perceive before they choose — which means it can be designed for, or exploited.
- What is an example of Economic Bubble?
- Strategic decisions made at the top of bubbles age very badly. The Incentives Lab catalogs everyday, organizational, and historical instances of this element on its Human Behavior Taxonomy™ page (HBT-COG-0258).
- How is Economic Bubble exploited?
- Strategic decisions made at the top of bubbles age very badly.
- How do you design around Economic Bubble?
- Track price-to-fundamentals and the share of buyers buying because price is rising.
- Which behavioral dimension does Economic Bubble belong to?
- Economic Bubble is classified in the Cognition dimension (COG) of the Human Behavior Taxonomy™, family "Markets", class "Mental Model". Its permanent identifier is HBT-COG-0258 and its evidence grade is B.