  Episodes of market crashes have fascinated economists for centuries. Although
many academics, practitioners and policy makers have studied questions related
to collapsing asset price bubbles, there is little consensus yet about their
causes and effects. This review and essay evaluates some of the hypotheses
offered to explain the market crashes that often follow asset price bubbles.
Starting from historical accounts and syntheses of past bubbles and crashes, we
put the problem in perspective with respect to the development of the efficient
market hypothesis. We then present the models based on heterogeneous agents and
the limits to arbitrage that prevent rational agents from bursting bubbles
before they inflate. Then, we explore another set of explanations of why
rational traders would be led to actually profit from and surf on bubbles, by
anticipating the behavior of noise traders or by realizing the difficulties in
synchronizing their actions. We then end by discussing a complex system
approach of social imitation leading to collective market regimes like herding
and the phenomenon of bifurcation (or phase transition) that rationalize what
crash can occur in unstable market regimes. The key insight is that diagnosing
bubbles may be feasible when taking into account the positive feedback
mechanisms that give rise to transient "super-exponential" price growth, the
bubbles.
