A “Bit” of a “Bet”: Crypto and the Science of Decisions

4 mins read

Your decisions are bets you make every day, and like a good bet, you might lose it. 

Now, wanna bet? 

Are you willing to bet on your beliefs? Well, that's what Annie Duke explains in her 2018 book Thinking in Bets. Duke explains that all decisions are probabilities. 

Can we use that to our advantage to make better decisions that lead to success in the crypto market? Of course.

Life and Crypto is Poker, Not Chess

We have always heard that life is a game of chess. Yet, Duke argues that life is more like poker. 

Ultimately, we make decisions every day without having all the information at hand. And when we make decisions, we are gambling that it will go well. But what percentage of certainty do we have when we make those decisions?

In poker, holding two aces is an excellent hand. Even so, having two aces does not guarantee you a win. Your hand is a movable part of the whole system. You can have a bad hand, and you could still win. 

That means one thing: the outcome of a decision says absolutely nothing about the quality of the decision. 

Duke gives this a name: Resulting. Resulting is measuring how good a decision was by the outcome it brought. Yet, resulting is dangerous, and we can't base or change our strategy around the results we had.

Jawad Nayyar, the co-founder of DAO PropTech, had something to add. 

According to Nayyar, people should look to the havoc caused by the Ukraine crisis and inflation to avoid resulting. You could've made the best decision given the circumstances, yet unrelated events affected the outcome. 

Uncertainty Is Your Friend

Cryptocurrencies are a new asset class that is still in its infancy. The lack of clarity and regulation means that there is a lot of uncertainty in the market. In short, uncertainty plays in our favor or against us. You just need to embrace it.

As strange as it sounds, uncertainty can help you do better in the markets. For example, bitcoin can go to 1M or 0 in a week - both are probabilities. Yet, there is a world of new options between those two options.

The point is that when it comes to making decisions, it doesn't have to be black and white. The trick, however, is to adjust our risk based on how confident we are in the decision we make.

Betting on Our Beliefs

Beliefs have the greatest impact on our decision-making processes.

In fact, the way we see the world is based on our beliefs. You can sit down and look at the same subject with someone else, and your points could be completely opposite. 

However, we don't often recognize that we may be biased.

The solution to this is simple: let's put our money where our mouth is. 

Instead of thinking that what we believe is correct, let us imagine that it is a bet.

You can be absolutely sure that something is true, but it is enough for someone to put money on the line to doubt it. 

It's not that we stop believing in what we say — it's just that we cast doubt on how sure we are of it. And that's completely fine. Are we right, or do we just think we are?

How sure are you?

Instead of thinking about whether we are right or not, let's think about degrees of certainty. For example, I'm 4% sure BTC won't reach 100K next week. But I'm also 87.3% sure it will reach that number in the next three years.

What happens if BTC suddenly explodes and reaches 100K in three days? Well, I'd be both wrong and pleasantly surprised. 

Once you start thinking about degrees of certainty, you open the doors to new outcomes and results.

Avoid Self-Serving Bias

Self-serving bias is a hell of a thing. When something goes our way, we think we did great because of our skills. If it goes wrong, it's bad luck. Yet, with someone else is the exact opposite. If someone does well, it's luck — if they fail, they lack skills.

We make more bad decisions than we would like to admit. The biggest problem is thinking like this won't let us learn from our choices and mistakes. 

We can obtain any result mainly based on our skills, but luck is undeniable. Sometimes we make bad decisions and get great results thanks to luck.

For example, let's imagine someone who had only $100 to invest in crypto a year ago. And let's say that person bought $100 equivalent of Dogecoin at $0.05. Why? Just because a lot of people were talking about it. 

Once DOGE reached $0.70, he would have made 14X their money. 

Does that mean they were financial geniuses? Not at all. There were external factors that drove the price to those heights. That doesn't mean that buying DOGE without understanding it was a good decision.

The Value of Community Building

Being a part of a community of like-minded people helps everyone optimize their decision-making processes. 

Once you find this community and start sharing data, your decisions are of better quality. In these communities, the important thing is not to be right, you just need to open a dialogue that allows new perspectives. 

Many people, including me, would have wished to be part of a community when they started their crypto journey. This would have allowed them to better understand how the uncertainty of the market works. This would have helped them always think about how to make better decisions going forward.

Now, I'm 83% sure most people won't be willing to change how they think. Yet, a small percentage of people will learn a couple of things with this. Don't believe me? Wanna bet again?