TULIPOMANIA

1636-1637
 What is Tulipomania?
• It is the widespread obsession with tulips, especially of highly
prized varieties, as those of a streaked or unusual color.
• Occurred during the Dutch golden age between the years
1636 – 1637
 It was a case that played on the
• The rules of Supply and Demand
• An episode that saw the rise in tulip prices driven by
speculators
• Considered to be the first ever recorded financial
bubble
 Economic Bubble
• Price of an asset > intrinsic value.
• Buyers buys in anticipation of gaining more by selling it to another.
• The bubble bursts when buyers are no longer willing to pay more
than an items intrinsic value.
• This causes those who own the asset to lose the amount by which
they previously overpaid.
• The drop in value happens in the form of panic selling
 Introduction of Tulips in Netherlands
• Dutch trade with foreign lands led to the importation of exotic
goods such as Tulips
• Tulips where first introduced to the Netherlands from turkey
shortly after 1554
• Tulips were imported by the Dutch East India Company that
traded various goods. From spices, to blue glass and to the
importation of tulips on the Dutch soil.
Tulips were perceived as:
• A symbol of wealth
• Form of currency
• More precious than gemstones
 Events leading up to the tulip bubble
• Dutch later saw the importation of tulip seeds.
• The farming of tulips in the Netherlands saw the
spread of a virus on the tulips, which made them look
like flames and appear more appealing and attractive
• Prices of tulips were priced according to their
category of variety.
 The Mania Phase
Beginning Phase
• Tulip prices steadily rose as their demand sky
rocketed which exceeded their supply.
• Tulip bulbs were purchased at higher and higher
prices by speculators who planned to turn around
and sell them for a profit.
Peak Phase
• By the peak of tulipomania in February of 1637, a single tulip
bulb was worth about ten times a craftsman’s annual salary.
• This led to more traders risking their money by investing in
buying tulip bulbs in hopes of making a fortune.
• Merchants were known to sell all their belongings in order to
buy a single tulip bulb.
 Scale of the peak phase

• The tulip bulb prices rose high enough that one tulip bulb was traded in
exchange for:
 A suit of clothes
 A complete bed
 A silver drinking cup
 Twelve fat sheep
• Tulip bulb speculation became so widespread by 1636 that they were
traded on Amsterdam’s Stock Exchange and even to places like France
and England. In particular, Paris and London.
 The Crash
• The bubble continued to inflate beyond peoples expectations until it
abruptly "popped" in the winter of 1636-37.
• This led to panic selling by tulip merchants.
• Within just a few days, tulip bulbs were worth only a hundredth of
their former prices.
• The Dutch government tried saving the trade by offering to honor
contracts at 10% of their face value.
• To no avail, the market of tulips plummeted.
 Biases
•  Herd behaviour – or groupthink – occurs when
people start to follow other people, rather than think
for themselves.