Availability Heuristic and Why You Should Ignore Moonshot Stories

Availability Heuristic and Why You Should Ignore Moonshot Stories

By TheCryptoShrink | The Crypto Shrink | 18 Sep 2021

We've all heard the stories about someone throwing money at crypto and making it rich. Lots of these people were very early adopters, in when prices were very low. Others, to put it bluntly, were just lucky; like the people who bought into a memecoin like Doge, SHIB, or SafeMoon and rode it straight to the moon and sold before a crash. When the market pumps, like this past Spring, there are even more of these stories of people making it rich in crypto spreading across the internet and more mainstream media. It often drives new people into this world also hoping to strike it rich.

Media (news, internet, whatever) is designed to make money through viewership and readership, so the more people engaging with a story the better. We end up seeing and hearing a lot of these "Guy Got Really Rich Really Fast"  stories because they're engaging. People like imagining themselves in that position, so they spread quickly across media outlets. The problem is when we can think of lots of examples of something happening, we tend to assume that thing common, even if it really isn't.

This phenomenon is called the Availability Heuristic. We estimate the probability of something happening based on how many examples of it come to mind. We don't naturally take the time to think through the actual probability of getting rich based on number of success stories compared to total investors. We just take what we know and make the best guess we can without considering what we don't know.

By doing this, we become particularly bad at estimating unlikely but major events because these big events are over-reported in the news. We hear more about plane crashes than car crashes so we may think planes are more dangerous (you're much less likely to die in a plane than a car). You may hear a lot about job layoffs and unemployment and start to overestimate the chances you'll be fired too. It works for more positive events too, like overestimating the chances of winning a lottery because you've heard a lot of stories about them.

So those "Guy Got Really Rich Really Fast" stories you heard? They warp your sense of what may happen in the future. You start to believe that if that random guy with no special knowledge can do it, it'll happen for me too. Except for every guy like that there are thousands more people who put money in and haven't made huge gains or have lost most of it. Outside of the stories of big rugpulls we don't tend to hear much about the many people who have not become millionaires - even though there are a lot more of them. But when that information does not stand out in our memory because the stories aren't told (or don't fit with our and our bubble's preconceived ideas), we don't take it into account. 

The solution? First you have to step back and recognize that most stories you hear are outliers. Only the amazing and sensational ones get reported, not the story about the guy who put in $500 that's now worth $528. If you can see them as outliers, you can also see then that most stories are not like that and you can readjust your hopes and expectations. You'll take more risks chasing a wild and unlikely goal of being an overnight millionaire (and end up more likely to lose it all), but fewer if you approach it with the understanding that in reality most success here comes slowly over many years and with a lot of patience.

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Long-time student of psychology and philosophy and crypto enthusiast.

The Crypto Shrink
The Crypto Shrink

Thoughts on the intersection of psychology and crypto. Sharing information on how the sometimes flawed ways we seek and process information and think about the world around us influence decision-making in the world of crypto.

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