Formation of economic bubbles: Causes and possible preventions

Abstract

The article deals with economic bubbles and analyses causes, means of prevention and results of economic bubbles. The exact cause of economic bubbles has been analyzed by many economists. The article discusses with different theories explaining the causes of bubbles formation and presents the possibilities to apply Logistic function for prediction of bubbles enabling to take preventive measures against bubbles creation. Some economists think that bubbles are related to inflation and therefore believe that the factors causing inflation could also be the same factors that cause bubbles to occur. Other economists think that there is a basic fundamental value to every asset and the bubbles represent an increase or rise over that fundamental value. There are also chaotic theories regarding the formation of bubbles. These theories argue that bubbles come from certain critical states on the market that originate from the communication of economic players. The aim of the article is to present a new theory explaining formation of economic bubbles based on Logistic growth models encountering the limited (financial, natural, physical, human etc.) capital resources.