040 041 Failures in trade: It is plainly clear that everyone was staking everything on the tulip despite its lack of intrinsic value. Dealers often refused to honour contracts, prices crashed, and people were left holding a worthless asset. Though the Dutch economy did not crash, individuals involved in the speculation became impoverished overnight. Before 1633, the Dutch tulip trade had been restricted to professional experts, but the steadily rising prices had encouraged many to postulate. Only a few people would ever see the tulip blossom, however, each owner aimed to make a larger profit than the last causing fluctuations within the market. The market crash: The market crash occurred virtually overnight beginning in February 1637 where the prices for bulbs plummeted. Buyers announced that they were unable to pay the high price previously agreed upon the bulbs which was the underlying reason for this market crash. The Tulip mania was a primary example of investors losing track of rational expectations and psychological bias, leading to a major uptrend in the price of the Tulip. A market crash is defined by ‘a sudden dramatic decline in the value of the market’ and it was clear that the primary reasons for the crash derived from lack of regulation, loss of confidence, realization of speculative nature and overvaluation. Tulip prices had exceeded their intrinsic value where they were driven more by speculation and irrationality rather than any fundamental worth the Tulips possessed. Furthermore, there was a lack of regulation in governing the market which led to the creation of manipulation and fraud which was an underlying stimulus for the loss of confidence in the sustainability of the price increase. This triggered a wave of investors cashing out their investments before the bubble burst completely evident in the graph from the 3rd to the 5th of February 1637. Moreover, herd behaviour was a RGSHW 2024/2025 Academic Journal The market crash: The market crash occurred virtually overnight begin ing in February 1637 wher the prices for bulbs plummeted. Buyers announced that they were unable to pay the high price previously agreed upon the bulbs which was the underlying reason for this market crash. The Tulip mania was a primary example of investors losing track of rational expectations and psychological bias leading to a major uptrend in the price of the Tulip. A market crash is defined by ‘a sudden dramatic decline in the value of the market’ and it was clear that the primary reasons for the crash derived from lack of regulation, loss of confidence, realization of speculative nature and overvaluation. Tulip pri es had exceeded their intrinsic v lue where they were driven mor by speculation and irrationality rather than any fundamental worth the Tulips possessed. Furthermore, there was a lack of regulation in governing the market which led to the creation of manipulation and fraud which was an underlying stimulus for the loss of confidence in the sustainability of the price increase. This triggered a wave of investors cashing out their investments before the bubble burst completely evident in the graph from the 3rd to the 5th of February 1637. Moreover, herd behaviour was a fundamental addition to the driven speculation. Herd behavio r which refers to how individual decisions are influenced by g oup behaviour was arguably the princip l r ason for t e Tulips reaching prices as high as 10,000 guilders. Many investors abandoned independent judgement and instead relied on the actions of others to inform their decision making. This herd behaviour contributed to the detachment of prices from their rational analysis. As doubts started to arise about the sustainability of tulip bulb prices, collective selling pressure further exacerbated the decline in prices leading to the dramatic crash. fundamental addition to the driven speculation. Herd behaviour, which refers to how individual decisions are influenced by group behaviour, was arguably the principal reason for the Tulips reaching prices as high as 10,000 guilders. Many investors abandoned independent judgement and instead relied on the actions of others to inform their decision making. This herd behaviour contributed to the detachment of prices from their rational analysis. As doubts started to arise about the sustainability of tulip bulb prices, collective selling pressure further exacerbated the decline in prices leading to the dramatic crash.
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