Thread by @CALC_Finance

➕ ➖ CALCulated Thinking ✖️➗

Episode #6: Action Bias

Did you know that humans often favor action over inaction for the sole reason of doing SOMETHING?

A🧵on the behavioral phenomenon that could be costing your portfolio dearly 📉

Let's begin by familiarizing ourselves with some typical -Action Bias- daily scenarios:

👉 The driver who is late to a meeting and is constantly changing car lanes in traffic when there is no clear indication that one is faster than the other.

👉 The desperate football coach making unplanned tactical changes during a football match to avoid the perception by fans and management that "nothing is being done".

👉 When we desperately smack our PC with the hope that the windows update goes any faster.

We do this because doing ANYTHING makes us feel more in control of the situation.

It can take the edge from any apparently urgent situation, and reduce some of that anxiety.

Doing nothing is often perceived as "passive", especially when facing a setback.

This knee-jerk reaction is hard-wired in our genes, and is related to our fight-or-fight response 🧬

Early action in emergency situations proved to be crucial when it came to our survival in the wild.

The sudden emergence of modern society means that our genes haven't had the time to adapt and prevent Action Biases.

Action is still our hardwired default, and this compulsion to do things whether its a good idea or not will kick in we like it or not.

Naturally, this has a significant effect on our finances, particularly when we're in full control of them.

This makes crypto #retail investors particularly prone to suffering the consequences of Action Bias when interacting with DeFi.

This is particularly dangerous in times of high volatility, as Action Bias is at its strongest when things are not going our way:

👉 Panic selling a dumping position
👉 Buying the 'dip' with utmost urgency
👉 Urgently minting an NFT collection without doing research

But besides these punctual actions, there are 3 general signs of a chronic Action Bias malaise that may be affecting your portfolio 👇

1/ A hyperactive portfolio 🚨

Check your transactions.

Unless you have a churning trading algorithm, there's no reason for clicking on your #ledger device multiple times a day.

Doing so may be exciting, and feel "hands on deck", but it is a rarely a lucrative practice.

2/ Price chart #addiction 📉

If you find yourself checking @coingecko multiple times a day, you may be at the mercy of an Action Bias.

Always ready to jump in as soon as there is "breaking news" on #cryptotwitter

3/ Hyper sensitivity to large losses 😱

Many of us have PTSD after the #FTX and #Terra meltdowns this year...

But most of the time, crypto events are not portfolio-ending emergencies, but just #drama that is better dealt without a reaction.

Are you currently suffering from any of these three Action Bias symptoms?

Well, you're not alone! 👪

Action Bias is a human phenomenon that affects everyone.

And thankfully, there are a few ways to prevent yourself from being a victim of Action Bias 👇

1/ Having a System for Investing⚙️

Having a set of investment rules that we set over time as we learn from our #crypto mistakes can be defining.

We covered this on our prior episode 👇

https://twitter.com/CALC_Finance/status/1597877104749969411

These ⚙️ rules are particularly effective when automated to ensure we don't tamper with them more than we'd ought to.

For example, setting up automated #DCA strategies on @CALC_Finance can ensure you are deploying your thought-out thesis, without being a victim of unhelpful bias

2/ Practicing Patience and No-Action 🧘‍♀️

Fortunately, humans have been learning to deal with Action Bias over the last thousand years, as we no longer have had to constantly fight or flee.

And many practices like #mindfulness and #surfing can help:

👉 A typical mindfulness practice is about focusing on the breath without taking any action, just observing 🧘‍♀️

👉 Catching good waves is often about patiently waiting for the right ones to hit your section, despite watching good ones break nearby 🏄

Key Takeaways:

👉 Action Bias is a human phenomenon
👉 Retail investors are particularly prone to suffering from it
👉 Over-trading and chart obsession are typical symptoms
👉 Adopting a system ⚙️ and automation are a solution.
👉 Having a 'No-action' practice is another.

This is ep #6 of our education series:

➕✖️ Calculated Thinking ➗➖

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