The financial and economic literature seems to pay less attention to financial bubbles that are not necessarily wealth destroying, but rather an important process for innovation in various domains. For instance, in her work on technological change, Perez (2009) argues that there could be a type of financial bubble which is inherently linked with major technological change.

The argument is more complex than it seems. While on the one hand, financial bubbles can be generated by the way the market absorbs anticipated technological revolutions, on the other hand, financial bubbles can help attract the financial capital necessary to fund and develop disruptive technologies at the frontier of innovation. In both scenarios, one may think of financial bubbles as being the result, or at least capable, of accelerating breakthroughs in technology and science. In other words, the argument in favour of so-called “technological bubbles” is that, without investor euphoria and excessive risk-taking, many technological innovations may never have happened. An example that is commonly referred to is the dotcom bubble. A rapid net inflow of capital into the emerging technology of the internet, it has been argued, accelerated the development of “innovation champions” over the longer term.

Conceptually, it is not surprising that financial bubbles and speculative investments are concentrated around new technological innovations and industries. If anything, asymmetric information and arbitrage opportunities tend to be higher around new and possibly disruptive businesses. On the other hand, investors tend to be more attracted by the possibility of abnormally high returns, compared to the paltry of low, perhaps even negative, returns of other traditional investments.

Perez (2009) argues that each technological innovation is triggered, or is followed, by a financial bubble, which allocates excessive amounts of capital to a given emerging technology. After a so-called “installation” phase, in which an excessive inflow of capital drives the initial installation of a new technology, there is a crash or “turning point”. After that, the emerging technology emerges and is deployed throughout the economy, across industries and societies. According to Perez (2009) and subsequent research, these three steps – installation, bubble collapse, and following deployment – characterise the rise of technological revolutions throughout history, from the first industrial revolution to the dotcom bubble.

One may argue that this is the reason why during technological bubbles there is a decoupling of market valuations and fundamentals, very much like that suggested by standard economic theory. One possible explanation lies at the core of the typical funding structure of technological innovations; the funding of new technologies by euphoric investors is often decoupled from the expected returns on investments, particularly in the short term.

As a result, almost irrespective of the underlying economic value, financial bubbles mobilise financial resources which are core to the development of new, possibly sustainable technologies. This is very much linked to a “trial-and-error” type of reasoning, according to which financial bubbles make available capital, which is wasted for the most part, but would not be mobilised otherwise. This is obviously against a typical rational-expectation, utility maximization argument, whereby investors seek to maximize their final wealth. It is for this reason that technology and financial bubbles have not always been seen as two sides of the same coin.

In this respect, financial bubbles are not seen as market failures, but rather as a “net-beneficiary” for society in the medium to long term. This is almost irrespective of the fact that financial bubbles in the short term can inflict pain and large losses to investors, as the ultimate benefit is for society as a whole and not just investors.