Paradox - Mar 2012

In the 16th century, the Ottoman Empire conquered Constantinople. The Turkish then planted and modified their latest discovery – tulip. Later on, tulip was traded to many other European countries, including one of the richest countries at that time – Netherlands. This brought a disaster to the country and became a great shame in her history.

Tulpenmanie 

A 17th-century watercolor of the 

Semper Augustus which was the 

most expensive tulip sold during 

tulip mania. Anonymous painter.

Tulip Mania, a famous economic bubble as it was generally considered as the first recorded speculative bubble. It refers to the sudden collapse of contract prices for bulbs of the tulip which reached extraordinarily high levels. During the event, different kinds of citizen like farmers, mechanics and seamen in the country rushed for the bulbs with a hope to make huge profits. Finally the real tulip lovers realized that the price of the tulips was impossibly high so they stop paying for it. This caused the demand of tulips collapsed. The speculators who was holding the bulbs contracts were not being paid and so many of them ran into bankruptcy. The bubble was broken. 

What we can observe from this event is the bandwagon effect among the citizens. They just followed the speculators and rushed for the tulip bulbs with a belief that it can make them a huge profit. It met the definition made by Colman and Andrew (2003) - as more people come to believe in something, others also "hop on the bandwagon" regardless of the underlying evidence. Besides, the limited information of individuals can cause the bandwagon effect too (Lohmann, 1994).

The tulip mania also shows us one kind of the defense mechanism – reaction formation. It means converting unconscious wishes or impulses that are perceived to be dangerous into their opposites. Take the Dutch as an example, they tended to hate tulip so much right after the event which was totally an opposition before the bubble was broken. 

Anthony Chan

References:
Colman, A. (2003). Oxford Dictionary of Psychology. New York: Oxford University Press. p. 77 

Lohmann, S. (1994). "The Dynamics of Informational Cascades: The Monday Demonstrations in Leipzig, East Germany, 1989-91". World Politics 47 (1): 42–101.