Between December 1636 and February 1637, tulip bulbs were traded in Dutch towns at prices more than a hundred times their weight in gold. The reason was that buyers had come to expect that they would be able to resell them to other people at even higher prices. Expectations were eventually dashed, however, and many people were ruined financially. This episode, dubbed the Tulipmania, is a classic illustration of a recurring phenomenon—an asset price bubble in which there is a rapid and unsustainable increase in the price of a financial asset. This case study challenges readers to use Kindleberger and Aliber’s theory of asset price bubbles to identify factors that contributed to the mania.
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