Is it possible to avoid bubble burst?

It is almost impossible to avoid bubble burst, as bubble burst is unpredictable. As I discussed previously that the bubble burst could be caused by mistaken expectations, once there is a fear among the market, it is very easy to make the fear become the truth. In addition, even if the possibility of a bubble burst is noticed before it takes place, it is unlikely to prevent the bubble burst from happening, instead it would make the bubble burst even faster. When the market notices a possible bubble burst, the market will immediately react to this probability. They will not try to prevent the bubble from bursting, they will try to gain more profits or limit their losses from the bubble burst. Therefore, there is only one probability that may prevent bubble from bursting that the regulators notice the danger of the bubble burst; however, this is not realistic that it is more likely for the market to notice the danger than the regulators do.

For regulators, because they cannot notice the possible bubble in the market ahead of the market, they have to use policies to reduce the probability of the market noticing the bubble in the market. In addition, they also tend to lower the bubble risk. These are the reasons that the regulators tend to moderate the economic volatility, not only the economic decline but also the economic growth as well. When there is no significant change in the market, it is less likely to create bubble in the economy.

Therefore, the regulator and government can only moderate the economic volatility to reduce the probability of bubbles; however, they cannot actively respond to a noticed bubble and prevent it from bursting.