Policy Bubbles: Policy Overreaction and Positive Feedback

Drawing on insights from economics, psychology, sociology, political science, and policy sciences, this article proposes a definition and measurement strategies for policy bubbles. A policy bubble is a real and/or perceived policy overreaction that is reinforced by positive feedback over an extended period of time. Positive feedback is here integrated in a model of human herding as the key factor that propels this process but also as a key generator of change. The process is conceptualized in terms of the formation, growth, and burst of policy bubbles. This causal-explanatory understanding of the term allows for the possibility that different modes of policy overreaction lead to different types of human herding, thereby resulting in different types of policy bubbles.