The Ex Ante Likelihood of Bubbles

The author thanks Nick Barberis, Pedro Bordalo, Zhi Da, Jesse Davis, Xavier Gabaix, Valentin Haddad, Sam Hartzmark, Lawrence Jin, Josh Pollet, and Jeff Wurgler for helpful comments. Marco Sammon provided research assistance. This paper also benefited from presentations at INSEAD; Illinois; National Bureau of Economic Research; Finance Research Association; Maastricht; Notre Dame; Imperial College; Washington University in St. Louis; the University of Massachusetts Amherst; the University of California, Los Angeles; Cavalcade; and Western Finance Association. This paper previously circulated under the title “The Madness of Crowds and the Likelihood of Bubbles.”