• This opinion editorial examines the influence of behavioral economics on Bitcoin investment decisions.
• Common traps such as FOMO, loss aversion, groupthink and sunk cost fallacy are discussed in relation to Bitcoin.
• The article also looks at related concepts such as FOGI (Fear of Getting In) and recency bias which can lead to irrational decisions.
Behavioral Economics and Bitcoin Investment
This is an opinion editorial by Rich Feldman, a marketing executive, author and advisory board member at Western Connecticut University. It examines the role that behavioral economics plays in shaping our preferences, beliefs and behaviors when it comes to investing in Bitcoin.
The article discusses common “traps” such as fear of missing out (FOMO), loss aversion, groupthink (“the bandwagon” effect) and the sunk-cost fallacy — which account for people holding onto their investments longer than they should. Cognitive journeys such as these are nicely demonstrated in a chart created by Credit Suisse which illustrates how emotions can influence investment decisions.
Fear of Getting In (FOGI)
The article also looks at related concepts such as Fear of Getting In (FOGI). Chalk this up to a nascent trading marketplace which can be confusing and require a technological leap of faith. However, this hesitancy around new technologies is nothing new; just look to the launch of online banking or mobile deposits for proof of this phenomenon.
Recency bias is another factor discussed within the article that could help explain much of the gyrations within the Bitcoin ecosystem. With so many advances capturing headlines seemingly every day, it’s no surprise that this irrational tendency to assume that recent events will all but certainly repeat themselves has potential for undue influence on near-future decisions – especially with access to a 24-hour market further amplifying peak-end rule effects.
In conclusion, this opinion editorial highlights how certain psychological factors play into our decision making when it comes to investing in Bitcoin – influencing both our willingness to invest as well as our approach once we are invested. Understanding these tendencies can help us make wiser financial choices going forward.