Main Takeaways
Availability bias and illusory truth effect are two cognitive mechanisms that contribute to the formation and reinforcement of misconceptions by making readily available and frequently repeated information seem more believable.
Myths persist because these biases make it harder to question beliefs. In reality, the Great Wall of China is not visible from space, and knuckle cracking doesn’t result in arthritis.
Some deep-rooted misconceptions about cryptocurrency driven by these biases make it easy to overlook its real benefits.
Have you ever believed something because you heard it so many times, even if it wasn’t true? In the second installment of our blog series focused on understanding the science behind crypto misconceptions, we explore why certain myths about cryptocurrency persist and how they can be debunked and avoided with a better understanding of some basic psychology of belief formation.
This series examines how certain biases ingrained in the way we think about the world can play a crucial role in shaping our views of complex topics like crypto. Today, we dive into two powerful cognitive biases that often work together to influence public perceptions: availability bias and the illusory truth effect. Whether it’s dramatic headlines about market crashes or repeated myths about crypto scams, these biases make it harder to see the truth.
Availability and Illusory Truth: The Ultimate Duo
Availability bias is at play when people make decisions based on the first piece of information that comes to mind. This usually means relying on what is recent or most easily remembered.
For example, if there's a lot of dramatic news in one’s feed about a cryptocurrency dropping in value, investors might overreact and make hasty decisions like pulling out their investments. This knee-jerk reaction, driven by recent and vivid information, can lead to poor investment choices and missed financial opportunities. Thus, it's important for new investors to be aware of how availability bias can cloud their judgment and to take a step back to assess the full picture before acting.
The illusory truth effect occurs when something starts to feel true simply because you’ve heard it repeatedly – even if it's actually false. Hearing or seeing something over and over again makes it seem more believable because it becomes easier to process and thus remember.
The illusory truth effect can be especially dangerous online. Overly exaggerated news headlines get repeated more than accurate ones because they’re more eye-catching. This results in inaccurate information appearing more credible, leading to people believing and sharing misinformation – such as, for example, false claims about miracle weight loss supplements, which might lead to wasted money and potential health risks.
The Great Wall of China and Knuckle Cracking
When combined, availability bias and the illusory truth effect can reinforce common misconceptions even more powerfully. A false claim that gets a lot of attention (availability bias) can be repeated often (illusory truth effect), making people believe it's true. This can result in the persistence of myths or incorrect information – making it harder for people to critically evaluate the facts and challenge falsehoods.
For example, the belief that the Great Wall of China is visible from space is a misconception fueled by its frequent portrayal in the media. In truth, although the wall is long, its narrowness and blending with natural surroundings make it difficult to see from space without aid. NASA astronauts have confirmed that from low Earth orbit, the wall is not visible to the naked eye.
Similarly, the belief that cracking your knuckles causes arthritis persists despite scientific studies showing no significant link. Research has consistently found that habitual knuckle cracking doesn't increase the risk of arthritis, yet the myth endures due to its frequent repetition. This misconception likely persists because of anecdotal reports and well-meaning but inaccurate warnings, making the false claim seem more believable.
In the same way, the combination of availability bias and the illusory truth effect plays a crucial role in shaping misconceptions about cryptocurrency. As crypto becomes more mainstream, many early false beliefs persist due to repeated misinformation and sensational media coverage skewing public perception. These widespread myths not only hinder understanding but also slow progress in the digital-asset space. Only with a closer look can the truth be unraveled.
Isn't Cryptocurrency Just a Playground for Scammers?
In the realm of cryptocurrency, availability bias and the illusory truth effect can significantly distort perceptions. One prevalent myth, especially among those who are familiar with digital assets only superficially, is that the cryptocurrency space is little more than a haven for scammers. This belief is influenced by the high-profile nature of crypto scams that attract media attention and make sensational headlines. Because these negative stories are often more vivid and recent, they overshadow the broader reality.
It’s also likely that negative headlines are more common because cryptocurrency is inherently more transparent and traceable. Every transaction is recorded on the blockchain, which can make it easier to expose illicit activities compared to traditional financial systems. Similar to the "Florida Man syndrome," where isolated incidents become highly publicized, this transparency may lead to certain events getting disproportionate attention, giving a skewed perception that crypto is predominantly used for scams. In reality, while scams exist, the overall ecosystem is much more diverse and secure than these headlines imply.
Contrary to popular belief, research shows that only 0.24% of cryptocurrency transactions were linked to illicit activity in 2023. In comparison, the estimated amount of money laundered globally in one year is between 2-5% of global GDP, or $800 billion to $2 trillion in current US dollars. This stark contrast highlights that while scams in cryptocurrency do exist, they constitute only a small fraction of the overall illicit activity – especially when compared to the scale of money laundering in traditional finance.
Think Crypto is Useless?
The idea that "cryptocurrency has no real-world use" is another misconception likely fueled by the illusory truth effect, where repeated negative narratives obscure its genuine applications. In reality, cryptocurrency has multiple impactful use cases, particularly in emerging markets. A prime example is remittances, which have become increasingly efficient and cost-effective through cryptocurrency.
Traditional remittance methods, like wire transfers, are loaded with fees. Senders often face high costs, including service charges and unfavorable exchange rates. In Q1 2024, the World Bank reported that sending $200 internationally cost an average of 6.35%, with even steeper fees in some regions. These charges can add up, making traditional remittances especially burdensome for low-income individuals.
On the other hand, cryptocurrency remittances tend to have lower transaction fees because they bypass intermediaries like banks and money transfer services. Instead, users only pay network fees, which are variable but generally more competitive.
Furthermore, numerous reports highlight how more individuals and small businesses are turning to digital assets for international payments due to the speed and affordability of this method. While only one of the many real-life use cases that crypto has, the payments example demonstrates that crypto plays a valuable role in improving global financial inclusion.
Final Thoughts
Recognizing cognitive shortcuts like availability bias and the illusory truth effect is crucial for making informed decisions — both in everyday life and in specialized fields like cryptocurrency. These biases can create misconceptions by making recent or repeated information feel more accurate than it really is. In the case of cryptocurrency, these biases contribute to myths that can mislead investors and the public. To effectively navigate these misconceptions and make informed decisions, it’s essential to seek out comprehensive and factual information.
This is where resources like Binance Academy become invaluable. As our open-access learning hub, Binance Academy offers a wealth of information on various crypto topics, providing free blockchain education to help counteract these biases. If you found this piece intriguing, stay tuned for more entries in our Science Behind Crypto Misconceptions series!