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Definition: Tulipmania

Tulipmania is referred to as the first major financial bubble in the Dutch Golden age. During this period the prices of the tulips reached extraordinarily high levels. Then the prices collapsed drastically in a short period of 1 week.

Investors began to invest heavily in the tulips due to which prices went up drastically. At one point of the time price of tulip was 10 times more than the annual income of the skilled craftsman. But as the prices dropped many investors went bankrupt.

Tulipmania is an example of the cycle of the bubble. Investors lose track of their rational estimation and begins investing the money in the assets due to psychological biases. This creates a positive cycle and others follow the same pattern thus leading to massive upswing in the prices of the assets. But as the investors realize that the asset is not worth the amount they have invested it leads to sudden downfall of the prices.


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