Are you biased?
Some of my friends are messaging as it looks like Bitcoin might make a push for another unprecedented price level of $75,000 today. Which is actually kind of interesting, considering the "holy grail" of a $100,000 price level, is only a nice, round 33% lift away. And while it might get to 75 in the time I write this post, it is the bias I am looking at, as there is "probably" a fair amount stacked on that 75.
To exemplify this, let's have a look at Binance:
As you can see, everyone is crowding around just under the 75,000 mark, because they want their sell to go through before hitting that wall. And, at the half below, there is another wall, a third of the size, but there isn't much up from there. I have been watching this for the last 30 minutes or so and a lot goes into the 75, then comes out and goes just below. There used to be almost nothing between 74.5 and 75.
We love round numbers.
It is a funny bias perhaps, because ultimately, one number isn't any different to another, in the same way that December 31st and January the 1st are not any different. Like many number-based factors in life, they are just arbitrary lines in the sand, meaningless for everything else, except our brains - as the round numbers trigger our memory, our emotional centers and of course, our obsessive-compulsive behaviors.
I have a lot of projects at work for instance, but before any thought has been put into them, an end date gets decided, which is guesstimated to 1 month, 3 months, 6 months, or 1 year. If there is a compelling reason like legislation change that has to be prepared for on a certain date, it makes sense to set dates accordingly. However, what often happens is that because the scope of the project isn't yet established, the arbitrary end date gets fixed in stone in people's minds even if the task list is much longer than first projected, not to mention delays due to things like shipping and illness.
Unit bias increases simplicity, as not only is it easier to remember, but it is a way for the brain to chunk information, as well as aiding calculations. It is a shortcut and saves us mental power, but like anything convenient, it is going to come with costs also.
I think in trading, it is also worth seeing the "zero point" as a unit bias, where I know for me at least, I avoid making a "loss" on an asset I bought. If I get it for 100, I want to sell it for at least 100. This has been costly for me, because I have failed to sell at for instance 97, and then watched it drop back and back, where I have to be a holder - perhaps forever. Had I sold at the just below, I would have been able to pick up much more of the same token later. Or, I would have been able to go into something else instead.
But, this also affects the "sense of failure" mechanism, where once that price is locked into the psyche, anything below it is going to be a fail. And, it doesn't have to be a loss. There are times where I have illustratively bought for a hundred, set a sell for 400, it got to 390, an that wasn't good enough. It isn't about the greed of getting that extra 10, it is about not reaching the unit bias. I hold in the hope for it to hit my bias, and I often end up holding again all the way down, or selling far below what I could have got for it, had I not been a stickler for unit attainment.
I find all of these little cognitive "quirks" interesting, and even though I know a fair bit about them, I am still very much affected by the biases. They are apparently engrained into us, and our desire to make our lives easier, keeps the habits alive. Even if it is detrimental to the outcomes we seek.
For most of us, these biases appear as unconscious bias, where we don't know we are making decisions on a heuristic, even though we are. However, awareness of them doesn't mean they don't happen, it just gives us a chance to make a different decision and perhaps with practice and time, change our defaults to those that work better for us.
What do you think your biggest bias is?
Mine might be HIVE.
Taraz
[ Gen1: Hive ]
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