PERCEPTION OF RISK AND INFORMATION IN CRYPTO
In this article we’ll see how to overcome and improve yourself by being AWARE of usual cognitive vices.
Has there ever been a period in which you considered a particular asset as valuable or non-risky and later, as risky or of little value?
Well, this is really common, and its something you need to be conscious about. First of all, this happens in moments characterized by a high level of euphoria or FOMO.
Moments in which the judgement is more sensitive, susceptible and volatile.
In those cases you need to take a big breath, and then asking yourself some fundamental questions.
Here some examples:
- Am I super afraid of losing all the capital invested? If the answer is yes, then you should reconsider your plan. “Only invest what you are ready to lose”
- Am I just considering the price given by the past OR am I getting real value? Analyze the fundamentals of an asset, if it has NO VALUE, WHY should you invest in it?
Donald Trump once said “ sometimes your best investments are the ones you don’t make”
- Am I considering the opposite and different opinions of an asset? The world is made of equilibriums, don’t ignore opinions not matching with yours. By doing so, you could avoid falling in a “Confermation” and “Endowment” bias loop
Now let’s go on with a particular effect which is interfering with your risk perception
When analyzing a project, you may often face communication rich of numbers, information, statistics and so on…
Now, is that information easy to understand by users?
How do they perceive that?
So, many studies have demonstrated that messages with the same content, but formulated differently, have a different impact on judgement and decision-making.
This effect is known as “Framing Effect”
It consists therefore, in a phenomenon which sees people responding differently to different formulations of a same problem
The images get right to the point
In fact statistics make the study conclude with a clear result:
People prefer the sure option when that is described in negative terms.
The whole study is explainable in the so called “Prospect Theory” by Tversky and Kahneman.
The key concept revolves around the “Subjectivity value” function
This function is characterized by 3 properties:
1/ People perceive different options in terms of potential GAINS or potential LOSSES, in relation to a NEUTRAL reference point
2/ LOSSES are considered MORE SALIENT than the corresponding gains
(Imagine winning 1 BTC vs. losing it; it’s surely more unpleasant to lose it than how isn’t unpleasant to win it)
3/ People tend to go for RISKY CHOICES when they are in the LOSS DOMAIN
So, people have a RISK AVERSION when the options are presented in terms of GAIN.
While they have a RISK APPETITE when the same options are presented in terms of LOSS
Being aware of this process could really help your analysis in relation to your crypto investments. This concept is then expandable to many domains, so be CREATIVE
Now let’s jump to the perception and the interpretation of the information we get
Recent studies have demonstrated that emotions and sensations play an important role in the perception and interpretation of information
People often don’t know the value of the information given (a white-paper for example), especially when a judgement and a decision is required.
This is amplified when the choices are complex and uncharted by those same people
It has been discovered that, when this situation occurs, people build a preference on the spot, and for this reason, what is learned is not stable, and so very susceptible
Once understood the FRAILTY of communication, it’s important that projects in the crypto world are aware of this thing, so that the communication would be well-studied and well-built in order to make the user internalize the information provided
In this “VALUE AND JUDGEMENT” -BUILDING PROCESS, lately, emotions have been integrated to the study.
The concept of “AFFECT” has been introduced;
- An emotion, positive or negative, linked with the attribute to be valued and which gives sense to that same attribute
This sense attribution plays a key-role in decision-making. As a consequence, the affect will be responsible for the choice-decision among the alternatives, and for the following behaviour too.
So for example, if the experience, and therefore the stimulus you get on a DeFi protocol, arouses a negative emotion, then you are probably going to behave in order to diminish that emotion.
On the contrary, if the emotion is positive, then you are going to behave to maintain or improve that state.
CURIOSITY:
recent researches have demonstrated that a big part of the population can’t give a real significance to information expressed as numbers.
So a message to crypto/defi/NFT projects;
<consider this thing to be more successful>
You could, for instance, provide reference-affective categories to make users better understand numeric information and choice options
CONCLUSION
As you could see, communication in Crypto is fundamental to ensure a great user experience, and giving a right perception of risk, by finally promoting a right behaviour that “converts” (in Marketing terms) according to well-built strategy with clear objectives.
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