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Bubbles and Crashes: The Boom and Bust of Technological Innovation Kindle Edition

by Brent Goldfarb (Author), David A Kirsch (Author) Format: Kindle Edition
4.5 out of 5 stars 15 ratings
“An interesting take on some factors that facilitate the development and bursting of bubbles in technology industries. . . . Highly recommended.” —Choice
 
Financial market bubbles are recurring, often painful, reminders of the costs and benefits of capitalism. While many books have studied financial manias and crises, most fail to compare times of turmoil with times of stability. In Bubbles and Crashes, Brent Goldfarb and David A. Kirsch give us new insights into the causes of speculative booms and busts. 
 
They identify a class of assets—major technological innovations—that can, but does not necessarily, produce bubbles. This methodological twist is essential: Only by comparing similar events that sometimes lead to booms and busts can we ascertain the root causes of bubbles. Using a sample of eighty-eight technologies spanning 150 years, Goldfarb and Kirsch find that four factors play a key role in these episodes: the degree of uncertainty surrounding a particular innovation; the attentive presence of novice investors; the opportunity to directly invest in companies that specialize in the technology; and whether or not a technology is a good protagonist in a narrative. 
 
Goldfarb and Kirsch consider the implications of their analysis for technology bubbles that may be in the works today, offer tools for investors to identify whether a bubble is happening, and propose policy measures that may mitigate the risks associated with future speculative episodes.
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  1. Print length
    294 pages
  2. Language
    English
  3. Publisher
    Stanford University Press
  4. Publication date
    February 19, 2019
  5. File size
    10.7 MB
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Editorial Reviews

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"What an engaging book! Why do booms and busts happen during the deployment of some technologies and not others? The work looks deeply at many memorable episodes of new technologies – electric lighting, vulcanized rubber, insulin, telephony, radio and television, electronic commerce, and much more. The authors bring accessible and penetrating insight to the economics, and illustrate with rich examples. It is a joy to read the stories and analysis. Highly recommended!"―Shane Greenstein, Martin Marshall Professor of Business Administration, Harvard Business School

"Goldfarb and Kirsch provide an interesting take on some factors that facilitate the development and bursting of bubbles in technology industries...Readers may particularly appreciate the discussion on competition and policy...Practitioners, graduate students, and researchers may benefit by reading this book. Highly recommended."––S. R. Sisodiya, CHOICE

"When is a technology boom actually a bubble? In Bubbles and Crashes authors Goldfarb and Kirsch deliver a nuanced guide to answering this question. Based on the careful examination of 88 important innovations―ranging from the electric light to the World Wide Web―they demonstrate the importance of pure-play investment opportunities, naive investors, and powerful narratives in allowing runaway speculation that overwhelms the moderating forces of imitation, entry, and competition. This is must reading for anyone interested in how new technologies develop, how they are perceived when they first occur, and how some generate clear bubbles."―Richard Rumelt, Professor Emeritus, UCLA Anderson

"Strongly grounding their work in historical evidence, Goldfarb and Kirsch advance our understanding of how technological innovations sometimes do, and sometimes don't, lead to financial bubbles. They move the discussion of bubbles and crashes away from journalism and toward science. Investors and finance professionals along with financial regulators and policy makers need to absorb the lessons of this provocative analysis."―Richard Sylla, New York University

"Goldfarb and Kirsch possess a keen understanding of the history of technological innovation and the evolution and implementation of new technologies and their respective impact on society. Their work sheds light on causal factors that were not previously well understood with respect to technological innovation and the underlying dynamics which lead innovation to spawn speculative bubbles. Bubbles and Crashes provides important insights for both investors and policy makers to recognize bubbles and implement policies to minimize their impact."―Jonathan Rosenberg, Senior Vice President, Alphabet

"A fascinating account of how and when new technologies lead to exuberant asset prices. Anyone who thinks about innovation and financial markets will enjoy this book."―Jonathan Levin, Stanford Graduate School of Business

About the Author

Brent Goldfarb is Associate Professor of Strategy and Entrepreneurship and the Academic Director at the Dingman Center for Entrepreneurship at the University of Maryland's Robert H. Smith School of Business. David A. Kirsch is Associate Professor of Strategy and Entrepreneurship at the University of Maryland's Robert H. Smith School of Business.

Product details

  • ASIN ‏ : ‎ B07MZ8PLCK
  • Publisher ‏ : ‎ Stanford University Press (February 19, 2019)
  • Publication date ‏ : ‎ February 19, 2019
  • Language ‏ : ‎ English
  • File size ‏ : ‎ 10.7 MB
  • Text-to-Speech ‏ : ‎ Enabled
  • Screen Reader ‏ : ‎ Supported
  • Enhanced typesetting ‏ : ‎ Enabled
  • X-Ray ‏ : ‎ Not Enabled
  • Word Wise ‏ : ‎ Enabled
  • Print length ‏ : ‎ 294 pages
  • Customer Reviews:
    4.5 out of 5 stars 15 ratings

About the authors

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  1. David A. Kirsch

    David A. Kirsch

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    David A. Kirsch was born in Palo Alto, grew up in New York, and now lives in suburban Maryland. He studies industry evolution, technological change, and failure, and the methods and sources we use to learn about these phenomena. He teaches courses on capitalism, entrepreneurship and social innovation at the Robert H. Smith School of Business at the University of Maryland, College Park.

    See more on the author's page
  2. Brent Goldfarb

    Brent Goldfarb

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    Full content visible, double tap to read brief content.

    Brent Goldfarb grew up in Minneapolis and Israel. He is an economist who studies entrepreneurship, technological change and their impact on society. He is a professor of entrepreneurship and strategy at the Robert H. Smith School of Business at the University of Maryland, College Park.

    He lives with his spectacular wife, Beth Rubens and two red-headed children in Washington DC.

    See more on the author's page
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4.5 out of 5 stars
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Top reviews from the United States

  • David Gaddis Ross
    5.0 out of 5 stars Audacious and carefully done
    Reviewed in the United States on June 14, 2019
    This is an extremely ambitious book, a serious and rigorously-conducted research project, presented in easy-to-understand language. In essence, the authors use past events of technological innovations that did and did not give rise to investment bubbles (as they define them) to propose a theory of what makes bubbles more likely and how to identify them in real time. As such, the book is must reading for entrepreneurs, investors, and policy makers, as well as scholars with an interest in financial asset markets.

    A distinguishing characteristic of the book is how carefully and how scientifically the authors approach the subject matter. They objectively define a sample of technological innovations, then craft a theory based on observations of the sample, then apply the theory to a new sample. They also make predictions about current potential bubbles. The book carefully notes potential limitations of the data and methodology. Nothing is swept under the rug.

    There are many takeaways from the book, but one struck me as particularly compelling because it is clear in retrospect but easy to lose sight of in the moment: If a lot of inexperienced investors are pouring into a sector - think Internet in the 1990s - there's a very good chance that the assets are overvalued. You can easily observe this: are your friends all telling you to buy such-and-such a stock? You may feel intense peer pressure to join them in their folly. You may have FOMO. But you'll likely get the last laugh when the market tanks, even if - and this is important - the sector ultimately proves successful some years later (like the Internet, radio, passenger flight, etc.)
    3 people found this helpful
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  • J Penney
    5.0 out of 5 stars Must Read For Practitioners In All Fields Related To Technology, Innovation, And Investing
    Reviewed in the United States on February 19, 2019
    I have had an early look at this super-engaging wonderfully written book, Bubbles and Crashes: The Boom and Bust of Technological Innovation. It contains fascinating accounts of the history of important technologies from the telephone to Tesla. The authors are entrepreneurship professors and look at each technology through a specific lens — did it lead to a speculative bubble or not? I remember reading Kindleberger’s “Panics, Manias and Crashes” in grad school and loving it, but wondering about the panics, manias, and crashes that didn’t happen? This book goes right to that point and gives the reader a framework for understanding why bubbles form only in certain cases. For example, some technologies created investment bubbles (e.g., radio, internet, aviation), while others didn’t (e.g., insulin, television, telephone). As a strategist and a student of value creation, the framework that Bubbles and Crashes: The Boom and Bust of Technological Innovation provides can help identify if an industrial bubble is potentially forming. If you're interested why Bitcoin and many ICOs have left so many bereft now you'll know why. As the authors describe, they are “technological narratives” that exploit our natural inclination to invest in good stories. I'm sure you're familiar with the phenomenon. Bubbles and Crashes: The Boom and Bust of Technological Innovation is a must read for all students of and practitioners focused on technology and innovation!
    8 people found this helpful
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  • A M
    4.0 out of 5 stars Tesla is a bubble
    Reviewed in the United States on August 30, 2019
    The book reviews the valuations of many companies related to technological innovations, and points at the patterns of bubbles. These patterns explain past bubbles, and imply only one risky prediction: Tesla is a bubble.
    One person found this helpful
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  • Trey Shipp
    5.0 out of 5 stars What to look for to predict the next technology bubble
    Reviewed in the United States on December 15, 2019
    The authors outline a framework to predict when conditions are right for a technology bubble to develop. They look for four things:

    • Uncertainty around the innovation. Like option prices, narratives feed on uncertainty. As pointed out by Daniel Kahneman, it is easier to generate a good story when we have fewer hard facts to deal with. The less we know, the more we can fill in with our imagination.

    • Large numbers of novice investors are ready to chase new and exciting technology.

    • Pure-play firms tied to the technology exist for investors to buy. Pure-plays make good stories. Tesla is more exciting than GM, even though GM also makes electric cars.

    • A compelling story predicts strong growth of the technology. Lindberg’s transatlantic flight helped drive the story of an optimistic future for aircraft companies.

    Like economist Robert Shiller, the author of Narrative Economics, Goldfarb and Kirsch believe that the speculative narratives we tell ourselves of how the future will play out drives technology bubbles. To quote the authors: “these mistakes have been repeated countless times. That we get fooled is not surprising; narratives and stories are how we think. But with a better idea of how, when, and for whom these stories become costly, we can better avoid them.”
    2 people found this helpful
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Top reviews from other countries

  • George V Loughery
    5.0 out of 5 stars Primary Drivers of Booms and Busts
    Reviewed in Canada on January 15, 2025
    Verified Purchase
    Authors did an academic study that identified two primary drivers of historical bubbles re new technologies. They found the presence of novice investors and the degree of uncertainty were
    major factors. They also discuss other factors like market access and pure plays.
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  • Nataraj B
    5.0 out of 5 stars Good
    Reviewed in India on October 16, 2019
    Verified Purchase
    Good
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