Economic Bubble: The Tulip Mania
Before we get into the story of The Tulip Mania, we ought to understand economic bubbles , what they do and how they come about? A bubble is an economic cycle categorized by the rapid escalation of asset prices followed by a contraction. It is created by a surge in asset prices unjustified by the fundamentals of the asset and driven by excited market behaviour. When no more investors are eager to buy at the preeminent price, a huge sell-off occurs, triggering the bubble to deflate. How a Bubble Works? Bubbles form in economies, securities, stock markets and business sectors because of a change in investor behaviour. This can be a real change — as seen in the bubble economy of Japan in the 1980s when banks were partially deregulated, or a paradigm shift — which took place during the dot-com boom in the late 1990s and early 2000s. During the boom, people bought tech stocks at high prices, believing they could sell them at a higher price ...