Technology Excitement Bubbles

Economic bubbles are well-known events in financial markets where investment excitement far exceeds objective assessments.?? Quintessential examples include the Dutch tulip craze bubble in the 1600’s and the dot-com bubble in the early 2000’s.? ??I have found that the nature of economic bubbles can provide insights into cases of excessive excitement about emerging technologies.

During financial bubbles markets assign increasing large and unjustified values to stocks or other investment instruments up until a sudden collapse in prices occurs. ??In retrospect, it is often clear that the values assigned were irrational despite the fact that during the bubble some competent players provided seemingly plausible rationales for the high valuations.??

The economist Hyman Minsky developed a widely accepted 5-stage framework for economic bubbles:

1)? Displacement:? Investors become enamored with a new investment opportunity which promises large, quick returns

2)? Boom:? Widespread attention leads to a rapid increase in investment participation and a self-reinforcing “fear of missing out” mentality

3)??Euphoria: ?Asset prices skyrocket and many well-regarded investors take part, which is seen as further proof that the prices are indeed justified

4)??Profit Taking:? Some well-regarded investors start seeing warning signs and move out of the market

5)??Panic: ?A random event or news item leads to a significant fall in asset price causing fear that the market may not recover and cause a rush of sell-off which snowballs into a crash

I propose that this framework may be adapted to technology excitement bubbles and imply useful warning signs that an excitement bubble may be occurring:

1)? Trigger: ?An emerging technology (typically TRL ≤6) which has an extremely favorable success case receives modest attention

2)? Spread:? Favorable stories emerge in popular press and a strong advocates emerge.? Concern grows among potential users about being a latecomer to the technology.

>> Warning signs of a potential bubble: i)? Interest is largely driven by potential benefits of a fully mature, widely-used technology rather than use cases for “beta” or “Version 1” products;? ii)? The envisioned technology that actually provides high value is radically different from closest commercially-proven analog in terms of scale, cost, or performance;? iii)? Proposed timelines to achieve widespread value are unaligned with historic experience with technologies of similar complexity and scale

3)??Bandwagon: ?Multiple major players announce interest and support R&D and rapid growth occurs in the number of new players (start-ups)

>> Warning signs of a potential bubble:? i) Cheerleaders, not objective experts, dominate favorable stories;? ii) Development or use interest contingent on substantial funding from non-profit driven organizations (e.g., government incentives and funding; social-driven venture incubation funds);?? iii)? High activity but required technical and economic performance for commercial attractiveness not actually being clearly demonstrated (i.e., conflating activity with progress)

4) Dawning Concern:?? Realization that true progress is slow or nonexistent and that strong barriers exist (often non-technical) to for the technology to become widespread given other options available to potential customers

>> Warning signs of a potential bubble:? i) Critical milestone schedules repeatedly slip, especially for real-world demonstrations and first commercialization;? ii) A respected group which was strongly supporting the technology pivots away from active support or R&D

5)??Disillusionment:? The next potentially “hot” technology comes along or an macroeconomic change causes multiple players to shift R&D priorities, which in turn causes yet others to drop support

Although a bubble is notoriously hard to recognize when in its midst and the next truly “big thing” may indeed look like a bubble at first, I believe there are signs which should give pause and drive a sober reassessment of one’s biases and potential blindspots.?? What tools do you apply to help recognize excessive technology hype and bubbles, especially when others are already acting on an emerging technology?