Coursework Assignment BEHAVIOURAL FINANCE VIEW ON MARKET BUBBLES Essay

Coursework Assignment BEHAVIOURAL FINANCE VIEW ON MARKET BUBBLES - Essay Example During the period of tulip mania it has been observed that the cost of a single tulip had surpassed the average income of an expert employee. The period of tulip mania was considered to be a golden age in the Dutch calendar where the prices of the tulip bulbs reached to an unexpected extent (Thompson, 2006). Literature Review and Explanation of Tulip Mania (of the 17th century) At present time, Dutch flower industry comprise about 70% of global flower production and about 90% of global flower trade. From the past time, Dutch flowers were traded to Europe, where the bulbs of flowers were sold with significant amount of prices. Among all the flowers, Tulip flower is significantly interrelated with the life of Dutch people. Dutch people were quite ecstatic about the tulip flowers. From the historical evidence, it can be observed that Dutch people consider tulips as a symbol of fortune in their life. Throughout the period of 1636 it has been observed that the costs of tulip bulbs became extensively which initiated the event, tulip mania (Goldgar, 2007). Historical Explanation of Tulip Mania (of the 17th century) Tulip was first originated in the year 1593, by a botanist named, Carolus Clusius, who carried tulip plant from Constantinople to Holland. He embedded a small garden to investigate the plant for medicinal purposes. Due to certain perceptions about tulip, the flower soon became a fashion icon among affluent people of Holland. As a result, its demand as well as prices started to increase. Momentarily usual tulip bulbs began selling at higher rate in the flower market (Wood, 2012). Key Elements or Structure of Tulip Mania (of the 17th century) With increasing demand of tulips, different marketers started to make investments on planting tulips which provided less risks and high profits. From historical evidences, it can be observed that in the initial period, tulip plantation yielded better profits, but after some years there was sudden fall in the growth of th e business. Nevertheless, new guidelines were applied for tulip production, but the firms and the industry faced losses due to rises in the prices of buds (Thompson, 2006). Behavioural Finance Phenomena of Tulip Mania (of the 17th century) The behavioural finance phenomena related to tulip mania of 17th Century provided insight about both prosperous and collision of the market of tulip bulbs. The tulip mania had led to extending negative consequences in the Dutch economy. The effects of tulip mania were so brutal in the sense that it led to liquidation of the economy. In the context of tulip mania of 17th century, it can be argued that in the initial period, the prices of the tulip bulbs were not quite high. However, when the tulip buds were carried in Europe, investors from different foreign markets collected those buds and spread in the market. Nevertheless, as time passed there was certain decrease in the demand of tulip bulbs for farmers because of certain risks in the cultivati on. Hence, the production of tulip