In his book Animal Spirits , economist Robert Schiller identifies five "animal forces" that drive investment decisions: confidence; fairness; corruption and anti-social behaviour; money illusion; and stories we tell each about the market, implausible tales taken as gospel - for example, the claim that property prices always rise because there is only so much land available. Economists like to depict markets as efficient and investors as rational; these animal forces are anything but. The word "confidence", for example, comes from the Latin word "fido", which means "I trust". (While we are in a credit crisis, recall that the word credit derives from the Latin word "credo", meaning "I believe".) But confidence is not necessarily rational. When we are confident, we buy, but our decisions are often not based on a quantitative analysis of business earnings 10years from now. Similarly, when confidence is lost, we withdraw. Shiller and his co-author George Akerlof say that the problem with confidence, be it too much or too little, is that it becomes a contagion. Bubbles, in other words, are like a disease.

Now Shiller takes it one step further, arguing that bubbles could be diagnosed using the same methodology psychologists use to diagnose mental illness.

What are the signs of this mental illness? They are:

* Sharp increases in the price of an asset like real estate or dot-com shares

* Great public excitement about these increases

* Media frenzy

* Stories of people earning a lot of money, causing envy among people who aren't.

* Growing interest in the asset class among the general public where, for example, taxi drivers start talking to you about shares.

* "New era" theories to justify unprecedented price increases

* A decline in lending standards.

It's a warning for people to be careful next time they're caught up in a bubble. Checking in for some psychotherapy might help.

And there are plenty of bubbles in the making: China, junk financial stocks, renewable energy, property...the list goes on. I review some of these here.

Be warned