Why might bubbles be difficult to identify

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1. Former Federal Reserve Chairman Alan Greenspan once argued that it is very difficult to identify bubbles until after they pop. What is a bubble, and why might bubbles be difficult to identify?

2. The British economist John Maynard Keynes once wrote that investors often do not rely on computing expected values when determining which investments to make: Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as the result of animal spirits-a spontaneous urge to action rather than inaction-and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities. If it is true that investors rely on "animal spirits" rather than expected values when making investments, is the efficient markets hypothesis accurate? Briefly explain.

Reference no: EM131305302

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