When the dot-com bubble exploded at the end of the 20th century, business writers began delving into history, particularly pointing at the South Sea Bubble, in which investors bid of the price of stock of the South Sea Company, despite it not really doing much of anything, and the Tulip Bubble, in which tulips first sold for astronomical sums and then, quite rapidly, for next to nothing.
The latter bubble has long been seen as a sign of how irrational investors can be, pouring their money into the latest craze even if no one could possibly think, for example, that one tulip bulb was worth 6,700 guilders when the average salary was 150 guilders.
But now a study done by a University of California professor and a Boston University graduate student says that investors might not have been that crazy after all. As Slate's Moneybox reports:
Tulip-bulb investors were neither mad nor delusional in 1636 and 1637. Rather, (Thompson) says, they were rationally responding, in finest efficient-market fashion, to overlooked changes in the rules of tulip investing.
The entire piece is slightly technical, but if you understand futures contracts and options, you can begin to see how Dutch tulip investors were acting in ways that made sense at least at the time, and perhaps even in hindsite.