Tiptoe Through the Tulips

On Flowers, Finance, and Human Fallibility

Last weekend, my family took a quick trip from Germany to the Netherlands. While there, we experienced the first weekend of Keukenhof, the world-famous tulip festival. I had a vision in my head about how our afternoon would go. We’d walk through the garden, soak in the sunshine, smell flowers, and take cute pictures for my kids’ photobooks and my Instagram feed. Then, as often is the case, real life happened.  It started hailing three minutes after we bought our tickets and walked through the gate.

Tulips are my favorite flower. Somewhere around the Ides of March they tend to be a sight for sore eyes. They give hope. Provide a sense of relief. Spring, sunshine. . . they’re coming. I suppose my predilection for this particular bloom is fitting. If there were an official flower of behavioral finance, the tulip would be it.  

In the annals of financial history, few episodes evoke as much fascination and intrigue as the infamous Tulipmania of 17th-century Holland. It's a saga that has captivated economists, historians, and behavioral finance enthusiasts alike, offering a window into the human financial psyche and the complexity of market dynamics. The story of Tulipmania highlights behavioral biases that drove one of the most extraordinary speculative bubbles in history.

This tale dates back to the early 1600s, during the Dutch Golden Age, a period of unprecedented economic prosperity and cultural flourishing in the Netherlands. Tulips, originally imported from the Ottoman Empire, became a symbol of wealth and status among the Dutch elite. The flower’s vibrant colors and exotic appearance made them highly coveted commodities.

As demand for tulip bulbs soared, prices began to escalate rapidly, fueled by a frenzy of speculation. By the early 1630s, tulip bulbs were fetching exorbitant prices, with some bulbs reportedly selling for the equivalent of a mansion in Amsterdam. The mania reached its zenith in the winter of 1636-1637, when tulip prices skyrocketed to astronomical levels.

What goes up will eventually come down. It’s physics. Like all speculative bubbles, Tulipmania eventually succumbed to the forces of gravity. In February of 1637, the market suddenly collapsed, sending prices plunging precipitously. Panic ensued as investors scrambled to unload their tulip holdings, but there were few buyers to be found at the inflated prices. Many speculators were left bankrupt, while others saw their fortunes evaporate overnight. In the aftermath of Tulipmania, the Dutch economy experienced a severe downturn, as confidence in financial markets was shattered. The episode left a lasting imprint on the collective psyche of the Dutch people. 

As I walked with my kids through the grounds last Saturday, I thought back to the colorful history of the flower. Tulipmania has been used as a cautionary tale about the perils of emotional exuberance and speculative excess. While it may seem like a distant historical curiosity, in many ways, its lessons remain highly relevant today.

Like many speculative bubbles, Tulipmania shows what happens when we take our cues from what the majority of the people around us choose to do. In 17th-century Holland, people rushed to join the euphoria of rising prices without fully understanding the underlying fundamentals of what was going on. The same thing happens today. Whenever we tell ourselves, “Everyone else is ______, so it must be a good idea!” it is a sign we need to STOP, slow down, investigate, and ask questions. Then, we need to summon the courage to do something different than our peers. 

Many people who got swept up in the tulip craze mistakenly believed they could predict what would happen in the future. As humans, we are horrible fortune tellers. Despite our poor track record, we convince ourselves we can reliably predict what’s waiting for us around the bend. Then, reality smacks us in the face.  During Tulipmania, enthusiastic investors took excessive risks without fully assessing the potential downside. Their decision-making failed to account for historical precedents and warning signs. They cropped their view (as most of us often do) to what had just occurred and what was happening “right now.” 

As we enter the next wave of behavioral finance, we have to be careful not to use this story merely as a case study of human biases to diagnose and treat. We have the advantage of hindsight as we look at this event in history. It’s easy to sit back and label the behaviors of the tulip-loving Dutch as “irrational.” You may think, “I would never be so foolish to spend more on a flower than I would on my mortgage. That’s ludicrous!” But don’t be so arrogant. The way our glitchy brains are wired makes it tricky to navigate the modern world. This doesn’t make us stupid, irrational, or foolish. It makes us human.

When it comes to behavior, most of us aren’t trying to blow up our lives and make bad decisions. On some level, all of our actions are in service of an underlying need. We’re wired to survive. Desperate to be seen. We want to know that, at the end of the day, we’re going to be okay. Sometimes, in pursuit of these things, greed and fear can take hold and get in the way of being the best version of who we are. 

As we move through the world in our flawed humanity, it’s important to be self-aware. If we recognize our tendencies to get in our own way, we can put guardrails in place to help us stay on track. When we falter, the key is to recalibrate quickly. How? With grace and self-compassion. We won’t criticize or shame ourselves into better behavior. 

When we encounter people making choices that seem foolish on the surface, we need to suspend judgment. We’re prone to falling into the exact same mental traps. Over time, history will humble us all. There are things each of us does and believes today that will someday seem as ridiculous to our successors as paying a fortune for a flower bulb.

Last weekend, I planned. Then, reality rained down. Like it does. Thankfully, my crew was able to respond with humor and flexibility. Sometimes adventures often aren’t fun while we’re having them. We took shelter in one of the buildings on the grounds and patiently waited for the storm to pass. (They always do). Eventually, the sun came out. There were pictures in wooden shoes. A trip to the top of a windmill. Beauty as far as the eye could see. As I took it all in, I was grateful. And reminded of my human fallibility.  

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