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In February 1637, a single Semper Augustus tulip bulb sold for 10,000 guilders—enough to buy a grand Amsterdam canal house. Buyers weren't irrational; they watched neighbors double their money in weeks and concluded tulips were a sure thing. The rising price itself became the evidence. This is reflexivity: price validates thesis, thesis drives price, until the loop snaps. The pattern replayed with eerie precision. In 1720, South Sea Company shares rose from £128 in January to £1,050 by June. Isaac Newton bought in, sold for a £7,000 profit, then watched prices climb higher and bought back in near the peak. He lost £20,000—his entire fortune. 'I can calculate the movement of stars,' he said, 'but not the madness of men.' Newton wasn't stupid. He was human. Loss aversion made selling whil...
Popular framing: People are just irrational and keep falling for the same hype.
Structural analysis: Reflexivity makes the rising price into the evidence that justifies the rising price; loss aversion makes selling-while-others-profit feel like losing; the availability heuristic biases the visible sample toward winners. Each bubble carries a narrative that this time is different, and the human operating system runs the same five-stage program — displacement, boom, euphoria, distribution, panic — regardless of the asset.
The popular framing locates the problem in individual psychology, which implies the solution is individual discipline or better information. But if each actor is locally rational (as Newton was when he first bought and profited), then individual-level interventions cannot prevent system-level crashes. The structural framing redirects attention to leverage limits, mark-to-market rules, and the institutional incentives that make riding bubbles rational for fund managers — levers that actually break the feedback loop rather than hoping individuals resist it.
