Yup. I had termed it status quo bias, but endowment effect would also explain it.
I was talking it over with a friend, who suggested that what’s really going on is that humans are more willing to gamble with fortuitous winnings than they are with purposeful investments (as in, you’ll be more likely to gamble a dollar you found on the ground than one you earned)… and I actually think that this is the biggest contributor to the explanation.
Of course, holding liquid assets in dollars wasn’t a deliberate decision either—it was just used by default. Even if I was completely risk averse, It’s not like I’ve got evidence that dollars are the most safe asset.
If I was planning this deliberately—I’m still a dependent and don’t really earn yet, so I haven’t really researched this—I’d probably store liquid assets in an index fund or something.
The thing is, when I look at the big picture everything is so riddled with bias already. For example, when Bitcoin began I put a high certainty on the value increasing, but I didn’t deliberately buy any. Before the recession, I put a high certainty on there being a recession before they put the temporary prohibition on shorting, but I didn’t short anything. Yes, it’s a good heuristic to not do anything (or more accurately, follow the majority) in scenarios when you are uncertain of your own competence...but my reason for not doing anything wasn’t explicitly negotiated via that reasoning, it was simply an instinctive tendency to not activity do things. (Interestingly, in this scenario uncertainty about my competence doesn’t imply inaction but action, since I’d have to deliberately buy USD.)
Edit: I’m reminded of this post… I think investing money in small amounts qualifies for “aliveness in training”, although as the amounts get larger it’s not training anymore. Perhaps we should encourage users who wish to practice in rationality to invest some liquid assets in something other than their native currency (unless they’ve deliberately chosen the native currency as the best place to store assets) to practice decision making?
So if you answer no to that question, then you are biased. But it’s not actually obvious which direction. What if non-Bitcoin-owning you is wrong, and you really should be buying it?
Also, if you have a lot of it, the extra Bitcoin might change your marginal value of money (because if you count the value of the BTC, you have more dollars than you otherwise would).
Yeah, but similarly, if you have 2 contradictory beliefs A & B, you don’t know whether to reject A or reject B (or maybe reject the argument which claims their contradictory). It’s like the saying, one man’s modus ponens is another man’s modus tollens. What Miller’s heuristic is useful for is revealing that you need to think and calculate more carefully on this topic.
Also, if you have a lot of it, the extra Bitcoin might change your marginal value of money
Yes, as Bitcoin appreciates, it would probably make more sense to rebalance your portfolio by selling off some bitcoins.
(Personally, I’m risk-seeking at this point, and I think most of the world still doesn’t appreciate a lot of the value in Bitcoin. For example, the blackmarkets still have not universally incorporated basic Bitcoin functionality like multi-sig escrow, and they have huge incentives to do so! If the Bitcoin blackmarkets are so primitive, the rest of the world still has a long ways to go to catch up and buy into Bitcoin. And indeed, I just finished buying some more bitcoins, although at this point I’m starting to get uncomfortable holding so much, so I think I’m stopping where I am.)
Correct, and I was implicitly ignoring income effects. Still, putting a lot of your assets in Bitcoins or any other exotic investment vehicle is ex-ante a HORRIBLE idea unless you have some special informational advantage.
I’d insert “think you should” before “buy”—there’s a large chance that if I didn’t have any bitcoins at the moment I would be keeping on putting off buying some because of the inconvenience.
If you owned zero Bitcoins would you buy some to speculate? If no then sell, otherwise you are falling victim to the endowment effect bias.
Yup. I had termed it status quo bias, but endowment effect would also explain it.
I was talking it over with a friend, who suggested that what’s really going on is that humans are more willing to gamble with fortuitous winnings than they are with purposeful investments (as in, you’ll be more likely to gamble a dollar you found on the ground than one you earned)… and I actually think that this is the biggest contributor to the explanation.
Of course, holding liquid assets in dollars wasn’t a deliberate decision either—it was just used by default. Even if I was completely risk averse, It’s not like I’ve got evidence that dollars are the most safe asset.
If I was planning this deliberately—I’m still a dependent and don’t really earn yet, so I haven’t really researched this—I’d probably store liquid assets in an index fund or something.
The thing is, when I look at the big picture everything is so riddled with bias already. For example, when Bitcoin began I put a high certainty on the value increasing, but I didn’t deliberately buy any. Before the recession, I put a high certainty on there being a recession before they put the temporary prohibition on shorting, but I didn’t short anything. Yes, it’s a good heuristic to not do anything (or more accurately, follow the majority) in scenarios when you are uncertain of your own competence...but my reason for not doing anything wasn’t explicitly negotiated via that reasoning, it was simply an instinctive tendency to not activity do things. (Interestingly, in this scenario uncertainty about my competence doesn’t imply inaction but action, since I’d have to deliberately buy USD.)
Edit: I’m reminded of this post… I think investing money in small amounts qualifies for “aliveness in training”, although as the amounts get larger it’s not training anymore. Perhaps we should encourage users who wish to practice in rationality to invest some liquid assets in something other than their native currency (unless they’ve deliberately chosen the native currency as the best place to store assets) to practice decision making?
So if you answer no to that question, then you are biased. But it’s not actually obvious which direction. What if non-Bitcoin-owning you is wrong, and you really should be buying it?
Also, if you have a lot of it, the extra Bitcoin might change your marginal value of money (because if you count the value of the BTC, you have more dollars than you otherwise would).
Yeah, but similarly, if you have 2 contradictory beliefs A & B, you don’t know whether to reject A or reject B (or maybe reject the argument which claims their contradictory). It’s like the saying, one man’s modus ponens is another man’s modus tollens. What Miller’s heuristic is useful for is revealing that you need to think and calculate more carefully on this topic.
Yes, as Bitcoin appreciates, it would probably make more sense to rebalance your portfolio by selling off some bitcoins.
(Personally, I’m risk-seeking at this point, and I think most of the world still doesn’t appreciate a lot of the value in Bitcoin. For example, the blackmarkets still have not universally incorporated basic Bitcoin functionality like multi-sig escrow, and they have huge incentives to do so! If the Bitcoin blackmarkets are so primitive, the rest of the world still has a long ways to go to catch up and buy into Bitcoin. And indeed, I just finished buying some more bitcoins, although at this point I’m starting to get uncomfortable holding so much, so I think I’m stopping where I am.)
While that may be true, the major downside risk is the governments putting their foot down. I treat that as “when”, not “if”.
Correct, and I was implicitly ignoring income effects. Still, putting a lot of your assets in Bitcoins or any other exotic investment vehicle is ex-ante a HORRIBLE idea unless you have some special informational advantage.
I’d insert “think you should” before “buy”—there’s a large chance that if I didn’t have any bitcoins at the moment I would be keeping on putting off buying some because of the inconvenience.