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Sunday, July 10, 2011

Bubble Illusion

A couple of recent conversations have convinced me that many people have "bubble illusion." When they talk about how much they have lost on their houses and in the stock market, and how that has affected their feelings of economic certainty, etc., the losses are almost always expressed relative to the peak bubble value rather than to a realistic assessment of what the house or stock was actually worth during the bubble years.

I'm not sure how much the additional pessimism that "bubble illusion" causes matters for people's outlook about their current situation, and thus how much it affects the willingness to spend -- that seems to be related more to actual values today than to how much was lost. But it may affect the goals people set for when they will feel "whole" once again, and thus have an effect on spending through that channel. In any case, the illusion does seem to be present.

    Posted by on Sunday, July 10, 2011 at 12:33 PM in Economics, Housing | Permalink  Comments (61)


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