Displacement · Boom · Mania · Distress · Crash · Minsky
Markets don't always price assets rationally. When sentiment and leverage combine with a compelling narrative, prices detach from fundamentals — sometimes for years — before crashing back to reality.
The Minsky-Kindleberger model describes bubbles in five stages: Displacement (a genuine innovation or policy shift attracts initial investors), Boom (prices rise, attracting momentum traders who push prices higher), Euphoria/Mania (widespread public participation, leverage peaks, "this time is different" narratives), Distress (smart money exits, credit tightens, first signs of trouble), and Crash/Revulsion (forced selling, panic, prices overshoot below fundamental value). The key feedback is procyclicality: rising prices allow more borrowing (collateral increases), which drives prices higher, until leverage makes the system fragile and a small negative shock triggers cascading forced deleveraging.
Click "Trigger Event" to launch the bubble. Watch sentiment (the inner loop) drive price above fundamental value. Increase the Leverage Multiplier to make the bubble larger and the crash sharper. Increase Momentum Factor to extend the mania phase. Increase Mean Reversion to make prices snap back to fundamentals faster (shorter mania). Click "Crash Trigger" at peak mania to simulate a Minsky Moment — the sudden recognition that valuations are unsustainable. The participant gauge at the bottom shows the shifting composition of market actors across phases.
The Dutch Tulip Mania (1636–37) saw tulip bulbs briefly trading for 10× the annual income of a skilled craftsman. The 2000 dot-com bubble saw the Nasdaq rise 400% in 5 years then fall 78%. Economist Hyman Minsky (1919–1996) was largely ignored during his lifetime — his theory of financial instability only became mainstream after the 2008 financial crisis that his work predicted. Charles Kindleberger's 1978 book Manias, Panics and Crashes catalogued 47 major financial crises over 400 years, finding the same pattern repeated every time.