But swings in risk aversion that will eventually revert back to some sort of equilibrium are, in my view, the manifestation of a phenomenon – more general than “bubbles” – which has been rationalised and modelled in various ways.
11 The important point is not so much to understand what causes such fluctuations in risk preferences – whether explosive expectations 12 or habit formation in consumption – but that they are ephemeral and, once they take off, they tend to fall back to ground.