Is the Universe Conspiring Against You?

Have you ever felt like you’re stuck in a deja-vu loop where everything feels like a repeat of what you just experienced?

Maybe you have learned a new word or concept and suddenly started seeing it in every newspaper or perhaps you purchase a shiny new red car, only to spot identical models lining every street. It’s as if the universe has conspired to bombard you with the same idea over and over again!

While it may seem like a strange coincidence, the truth is that our brains are wired to notice patterns and make connections. As we become more aware of something, our minds start actively seeking it out, even in situations where it may not necessarily be relevant.

This is called the frequency illusion, also known as the Baader-Meinhof phenomenon.

But what about when this effect spills into the financial realm?

“Are we like moths drawn to the flame of (crypto) trends and narratives, unknowingly dancing towards the FOMO and false promises, while the market burns us with its volatility?”

Let’s explore.

What is Frequency Illusion?

At its core, the frequency illusion is a cognitive bias that causes us to notice things more once we become aware of them. Suddenly, we start seeing it everywhere because we’re noticing it more.

Due to frequency illusion, we might think a particular issue is more widespread or significant than it actually is, simply because we’ve started paying more attention to it. This can lead to misguided actions, misplaced priorities, and missed opportunities.

It’s like you’re wearing a pair of special glasses that can only see what you’re obsessed with. You start seeing the same model car you recently purchased on every street corner, every billboard, and every ad on your phone. You even start noticing the car’s logo on the shirt of your neighbor’s cat.

But where did this phenomenon come from?

Back in 1994, Terry Mullen posted a comment on an online board mentioning that he had recently learnt about the West German terrorist group Baader-Meinhof group for the first time. Suddenly, he started hearing about it everywhere he went.

Readers who had experienced similar situations confirmed the thos occurrence, leading to the creation of the Baader-Meinhof phenomenon — a term that sounds like a plot from a cheesy sci-fi show.

While the Baader-Meinhof moniker may have been catchy, it lacked the rigor and precision demanded by the academic community. After more than a decade, Arnold Swicky, a preeminent linguistics scholar at Stanford University, formalized the concept with the more scientifically accepted term, “the frequency illusion.”

But the question remains, is it a glitch in the Matrix, or is our brain just wired to make connections? Are we just programmed to find patterns, even in situations where they might not exist? Or is it just the universe’s way of messing with us?

So why does it happen?

Our brains are conspiracy theorists!

We’re like the guy who thinks the government is listening to his phone calls because he heard a clicking noise.

We tend to find patterns even when they don’t actually exist. This pattern-spotting talent can be useful for learning, but it can also lead to the frequency illusion.

Our intuition tells us that coincidences are more than mere chance. However, the reality is that coincidences happen more often than we realize; we just tend to underestimate the probability of them occurring.

But mainly, it happens due to two psychological processes: Selective attention and Confirmation bias.

Selective attention

Our brains are constantly filtering out irrelevant information, like background noise such as planes overhead, birds chirping, smells, or any other distraction.(similar to your ex’s social media posts, your boss’s nagging, or your cat’s constant meowing) to help you focus on what’s important.

It is like a bouncer at a club, only letting in the people on the VIP list.

Although selective attention is essential, it’s not infallible. One can easily overlook valuable information that doesn’t align with his preconceptions. This is where the second process, confirmation bias, comes into play.

Confirmation bias

We tend to seek out information that confirms our beliefs, and ignore or dismiss that which contradicts them. This tendency is especially pronounced when it comes to emotionally charged topics or beliefs that are central to our identity and beliefs. In the case of the frequency illusion, once we notice a particular thing, our confirmation bias kicks in, and we start seeing it more often, further reinforcing our belief in its prevalence.

How does it apply in crypto investing?

The Selective Attention and Cognitive Dissonance Trap

When it comes to crypto investing, having selective attention means honing in on the news, market trends, and social media buzz that pertain to our chosen assets.

One of the other biases that is related to selective attention is Cognitive dissonance.

As humans, we crave stability and consistency in our lives, but what happens when new information challenges our existing beliefs? The discomfort that arises is known as cognitive dissonance, and it can lead us down a path of irrational actions and missed opportunities.

It is similar to wearing a pair of shoes that are too small but refusing to take them off because they’re your favorite pair. You know they’re hurting your feet, but you don’t want to let go.

Investors often ignore new information that conflicts with their beliefs. For instance, you might sell an asset because you believe it’s going to zero based on a lack of progress on the roadmap. If the asset’s value goes down, you might feel validated. But if new positive information emerges that conflicts with your earlier views, you might ignore it and miss out on potential gains.

“Be willing to take a step back. Being open-minded and adaptable could be the key to success.”

Like the GPS on your road trip, we need to be willing to re-evaluate our route when faced with a detour. We need to challenge our assumptions, examine our beliefs, and decide which one is closer to reality.

The Slippery Slope of Confirmation Bias in Crypto Investing

https://twitter.com/Route2FI/status/1514244570988662803?s=20

In the context of crypto investing, confirmation bias means being drawn to news articles and market analyses that align with our bullish or bearish outlooks, while ignoring those that challenge our assumptions.

The danger of confirmation bias lies in its ability to create an “echo chamber”, a closed-off space where only those who share similar views as yours are heard.

“The frequency illusion can be manipulated by marketers who know that when we notice something frequently, we tend to think it’s more popular or important than it actually is.”

Brushing off any negative data as FUD and assuming that it’s nothing more than a conspiracy to undermine your chosen coin is a form of tunnel vision.

Such bias can be a slippery slope that leads you to make uninformed decisions, leaving you with a bag of worthless tokens and a head full of regret, wondering where it all went wrong.

Combating Cognitive Biases

One can avoid such biases by studying the works of the Nobel laureate Daniel Kahneman, who has extensively researched the many biases that affect our decision-making.

Reflecting on our past mistakes can help us identify the biases that have impacted our trading decisions.

Moreover, by creating a checklist, we can ensure that we are aware of any potential flaws in our thinking before making an investment decision.

Developing systems can also be helpful. These systems can be a set of processes and decision-making criteria that help us stay objective and avoid becoming emotional once we’re in the trenches. For instance, knowing when to cut losses or take profits before entering a trade can be an effective way to prevent emotional decision-making.

Final Thoughts

The next time you find yourself nodding along with the crowd, stop and think. Ask yourself — am I really seeing the full picture here? Are my biases clouding my judgment?

In the end, it’s not about being right or wrong, it’s about making the best decision possible with the information available. So broaden your horizons, seek out opposing viewpoints, and embrace the uncertainty that comes with growth.

This article was written by Raviyank Patel on behalf of COMB Finanical