Our brains are designed to be efficient and make quick and efficient decisions. Although it is said to be perfect, it contains mental shortcuts that ignore objective data and lead to false conclusions in people’s thoughts, behaviors and beliefs. Related mental shortcuts are called cognitive biases (or biases) by Nobel Prize-winning psychologist Daniel Kahneman and his colleague Amos Tversky. According to him, people do not always act rationally, do not make logical choices, and have cognitive errors and biases in their decisions, especially in risky, uncertain and complex situations. Cognitive biases, which are thought to arise through evolutionary processes, can also be influenced by many factors such as the environment or culture in which a person lives, the education they receive, and experiences.
Before moving on to cognitive biases, Kahneman briefly presented, Thinking fast and slow (Thinking, fast and slowI would like to talk about Systems 1 and 2, which he explains in detail in his book. According to Kahneman, the human brain operates in two modes: System 1, which is automatic, fast, and based on emotional reactions (also known as intuitive thinking), and System 2, which is slow, analytical, conscious, and laborious thinking. (also) contains the process of called analytical thinking). Many people behave within the framework of System 1 in risky, uncertain and complex situations (e.g. the finance sector) in which they have no knowledge.
Investing seeks rationality, not intuition.
If we can be aware of our decision-making processes, what we do and why, and what cognitive errors and biases we employ, we will have relative control. Cognitive biases, which we will discuss later, are often studied, especially in the field of behavioral economics. It is very important that you read them and try to understand what biases you have, because being aware of the cognitive biases we have will help you shape your future behavioral decisions, thinking and reasoning skills. Will help give. If you can make it a habit, you will be able to make relatively more rational decisions than intuitive ones.
Of course, we cannot speak of a situation where a person is completely rational. Expressing this would not be realistic. However, realizing as much as possible the origins of our own behavior, why we fall into market manipulation, and why we are influenced by others and their views will put us in a more advantageous position. After all, the field of finance, where we are ourselves and trying to buy other people’s money (where you sell, someone else has to buy), requires such rationality.
The pre-priming effect
This enables people, after exposure to a stimulus, to more easily recognize, grasp, or remember what is unconsciously associated with it. For example, in cryptocurrency exchanges (such as Binance, OKX, Bybit), categories such as “popular coins”, “trading coins”, “most profitable” influence people’s behavioral decisions and Enable them to refer to. When a person is researching a new coin, the coins he sees there come to his mind and he gravitates towards similar coins.
Similarly, given three examples of exchange names, users who are not aware of the topic are actually more likely than those who do to refer to these exchanges, because the person asks himself, ” Which crypto exchange should I choose?” One of these will probably come to mind when you ask, even if you don’t know the source. As I mentioned in the series about crypto-phenomenology, we are unwittingly influenced by the words and actions of others when making behavioral decisions. Even if we do not directly change the behavior, our cognitive sensitivity is affected and we face a dilemma whether to make this decision or not.
Salience bias
Text with more attention-grabbing titles and content, such as “Bitcoin Passes 100,000 Dollars!”, “The New Dodge”, “The Best Artificial Intelligence Projects Will Be Removed”, “That Coin In The Minds Of Over 100 People” will remain.” With this tactic, which is also used by many crypto-phenomena, people “invest in projects” whose content they don’t know and then get scammed. Especially today, when attention spans are short and even long texts can’t be read, people prefer to educate and guide themselves financially, instead of researching a project and reading in detail. Instead, prefer “projects” submitted by people they follow with the above topics. Their investment decisions because it is easy to use and promises “100x” without any effort.
Optimism bias
Optimism bias is the tendency to believe that a person’s decisions and behaviors will have mostly positive outcomes and not negative ones. Almost everyone secretly believes that their investments are very good, that they will earn more than others, and that they can smell the market well. It actually stems from the optimism bias and the belief that “I think, therefore it must be true.”
As a personal comment, in many trades where I’ve considered placing a manual stop, I’ve always thought, “What if it comes back from here?” The thought was passing. While I had experiences that reinforced this idea, I also had experiences that left me frustrated and losing money. I realized much later that I had fallen into an optimistic bias in such situations. In these moments, the mind has to convince itself that the current loss can be compensated and a huge profit made. Otherwise, why would you enter into a transaction where you know you will suffer a loss? Being under the misconception that better results are always waiting for you in such situations, especially in leveraged transactions, can be very damaging. What needs to be done is to act objectively, strengthen your hand with technical and fundamental analysis, examine arguments that may contradict our own views, and formulate your plan well in advance. If you have a specific strategy (such as entering the points where you will stop the trade and take profit beforehand) and make sure to stick to that plan, you are more likely to continue winning overall. .
This article does not contain investment advice or recommendations. Every investment and trading venture involves risk, and readers should do their own research when making decisions.