I've studied hundreds of cognitive biases to become a better Crypto investor.
Here are the 14 most important ones:
Have you ever:
• Fomo'ed into a COIN at all time highs?
• Sell your bluechips for shitcoins?
• Lose 50% on a coin, and lose another 45% bc you didn't cut your losses?
That's cognitive biases working against ya.
They're "thinking" errors aka bugs in your brain.
/1 Unit bias
People prefer to buy a “whole unit” of a token, rather than a fraction of it.
It's why meme coins exploded.
Don't overweigh the value of a token because it's "cheap."
Understanding how market caps work.
/2 Anchoring bias
Over-reliance on the 1st piece of information you have.
You heard about Bitcoin at $1,000.
You missed out.
Then it GOES UP to $5,000.
You don't want to buy it anymore. It's "too expensive" in your head.
Evaluate it based on its POTENTIAL not its PAST.
/3 Confirmation bias
You only seek out information that tells you what you want to hear.
You only follow people that say good things about X coin.
You unfollow and block anyone that spreads “FUD.”
When you invest, seek and research the FUD to see if it's valid.
/4 Sunk cost bias
A cost that has occurred and can't be recovered.
We have a tendency to keep investing more money or OVER-committing because we're scared of losing our original investment.
Sunk costs in real life
You've invested $10k into your friend's Frozen yogurt shop. It's doing horrible.
"I need another $5k for a milkshake machine"
You might be tempted to invest more to "save" your $10k.
Don't throw good money after the bad.
Sunk cost in Crypto
You're -70% on a coin.
You still have 30% left.
That's 70% is gone.
That 30% could be better off investing somewhere else, rather than hoping the original investment bounces back.
/5 Loss aversion
Losing money feels worse than gaining money.
Anyone that has been in Vegas knows what I'm talking about.
Winning +$100 does not feel the same as losing $100.
Losing is painful.
A study shows that the brain typically assigns 2.5x to a loss.
+250 = -$100
An example is when your investment is down 50% and there's more bad news.
You can close the trade and cut your losses.
Loss aversion means some ppl will PREFER to wait it out.
They're afraid of "losing" the money by selling.
Loss Aversion leading to risk avoidance
There has been a handful of rugs in DeFi.
I've seen some ppl vow to never invest in DeFi again!
Their loss aversion means they'll be missing out on life changing gains.
Weigh the risks vs rewards properly.
/6 Recency Bias
We overweight RECENT information and events.
"ETH's price is boring. I'm going to chase after low cap coins"
Then they get wrecked in bear markets.
You can beat recency bias by zooming out on the charts.
/7 Overconfidence Bias
We overestimate our own abilities.
We get lucky a few times, and think we're smarter than we really are.
The key to beating Overconfidence is solid risk management strategies