# Thought Viruses and Asset Prices

## TL;DR

This paper models how investment ideas spread like viruses using epidemiological concepts, revealing patterns in market booms and busts, including early warning signs and the impact of rational agents on market dynamics.

## Contribution

It introduces a novel epidemiological model of investment idea spread to analyze asset price bubbles and market top characteristics.

## Key findings

- Market prices peak after the number of infected buyers continues to rise.
- Fully rational agents accelerate booms and produce broader market tops.
- The model identifies early symptoms indicating different stages of market bubbles.

## Abstract

We use insights from epidemiology, namely the SIR model, to study how agents infect each other with "investment ideas." Once an investment idea "goes viral," equilibrium prices exhibit the typical "fever peak," which is characteristic for speculative excesses. Using our model, we identify a time line of symptoms that indicate whether a boom is in its early or later stages. Regarding the market's top, we find that prices start to decline while the number of infected agents, who buy the asset, is still rising. Moreover, the presence of fully rational agents (i) accelerates booms (ii) lowers peak prices and (iii) produces broad, drawn-out, market tops.