In a research dated to 1974 an American scientist David Philips proposed a theory of the so-called “Psychology of influence”, saying that a person will adopt the behavior of others in a dangerous or incomprehensible situation. The theory was later proved by a police conducted research - when the local news highlighted a suicide, 10 more people in the area killed themselves shortly after. This long introduction leads us to the main question - how to not let your brain trick you into making unconscious decisions 😵💫
What is herd instinct in crypto?
Being highly reliable on a constant money flow, crypto requires individuals to contradict the opinion and decisions of others creating turning points. When a large group of people all follow the same pattern of market behavior, herd instinct occurs, resulting in significant pumps or dumps shortly after.
The car problem
You are an experienced and cautious driver. There are two cars switching lanes in front of you one after another. What are your further actions?
99% would answer that following the two vehicles and switching lanes is the only correct decision, since such behavior is usually an indicator for a car accident ahead. However, what are the chances that it was a simple coincidence and there is no reason to take action 🤔
It works the same for buying and selling your assets - an emergency situation causes people to copy behavior of the individuals they find similar to themselves. The problem here is it isn’t always the emergencies that make one feel uncomfortable.
Believing the authorities
Uncertainty combined with finding yourself similar to others can be deadly. However, it gets even worse when we begin to believe that the “experts” are always right. Remember what happened with Dogecoin? Exactly, that is how dangerous trust can be.
We are thousands of years away from being primitives, but that little knob making us question our own decisions in favor of the authorities’ opinion still switches on from time to time 🎚️
It gets worse though
Gambling addiction isn’t something we hear too often about nowadays, since the majority are trying to avoid any games that could lead to significant losses. No one is attracted to slot machines anymore due to the potential outcomes those might have. However, a trader saying they’ve just withdrawn a couple thousand dollars from flipping that coin yesterday sounds much more convincing.
We are not saying that we are against attracting more people to the market, but that isn’t the way to do it. Every gambling addiction consists of multiple stages and the further it goes the more dangerous it becomes. A side hustle can soon become a mental disorder
How do we avoid all this?
The first and most obvious advice is to never trust anyone or at least do your own research after considering what others say. That can be applied to any of the three problems and works really well in 90% cases.
Moreover, taking crypto seriously is as important. The people who view coins as a game or a way to get rich quickly are usually the ones who have to deal with a gambling addiction or inverted Xs afterwards.
Stay tuned 📻