Behavioral biases in the investment of cryptocurrencies: a perspective of AI
The cryptocurrency market is known for its volatility and unpredictability, making it a high-risk investment option. However, the reasons for this volatility are more complex than you think. In this article, we will explore how behavioral biases play an important role in training decisions and results of investors in the cryptocurrency space.
What are behavioral biases?
Behavioral biases refer to systematic errors in thought that arise from cognitive biases, emotions and psychological factors. These biases influence our perceptions, our judgments and our decision-making processes, often lead us to make irrational or sub-optimal choices. In the context of investment in cryptocurrencies, behavioral prejudices can lead to bad investment decisions, such as fear-based trade, confirmation bias and excessive retention of the momentum.
1. Trading based on fear
Fear is a natural human emotion that pushes many investors to sell their shares when they perceive a drop in value, regardless of their underlying fundamental principles. In the cryptocurrency space, fear can lead investors to empty their parts, fearing that the market will continue to fall or that they will lose money on their investments.
For example, during the breakup of the 2018 cryptocurrency bubble, many investors panicked and sold their cryptocurrencies at top prices, to later make the error of their tracks. This commercial -based commercial strategy is often called “herd -based herd mentality”.
2. Confirmation bias
Confirmation bias refers to the trend of humans to seek information that confirms their pre -existing beliefs or expectations, while ignoring contradictory evidence. In cryptocurrency investment, confirmation bias can lead investors to focus on positive news and ignore negative relationships on a particular room.
For example, many investors believe that Bitcoin is due to a massive price increase before this happens. This confirmation bias can lead them to keep their positions even when they do not make optimal decisions, because they think that the market will continue to move in their favor.
3. Too emotional decision -making
Investment in cryptocurrency implies high levels of emotional involvement, investors often knowing strong emotions such as euphoria and despair. This too emotional decision -making can lead to impulsive negotiation decisions, which can cause significant losses.
For example, some investors can be too enthusiastic about the particular cryptocurrency potential for the appreciation of prices, leading them to buy without fully understanding the underlying fundamentals. Alternatively, they can become excessively concerned about market volatility, leading them to empty their parts when prices drop.
4. Elan psychology
The momentum refers to the tendency to safety or an asset to continue to move in one direction over time, despite changes in its fundamental characteristics. In the investment of cryptocurrency, Momentum can lead investors to buy declines and keep positions even after they no longer make optimal decisions.
For example, some investors can be enthusiastic about a prices overvoltage of a particular room and start to buy as it continues to increase. However, if the trend is reversed or the underlying fundamentals change for the worst, these investors can be stuck in a losing position.
5. Losses aversion
The aversion of losses is the trend of humans to prefer to avoid losses in relation to acquisition gains. In the investment of cryptocurrencies, losses aversion can lead investors to become too cautious and hesitant to take risks, even if it means lacking potential profits.
For example, some investors can avoid investing in cryptocurrencies simply because they fear losing money or undergoing significant price reductions.