Recently, an academic research team from the United States publish A study exploring how the “gambler’s fallacy” affects cryptocurrency donations. Their findings suggest that organizations that accept cryptocurrency donations can benefit from market timing.
Essentially, the team’s work explores the idea that people often misinterpret certain pattern signals in finance. Charities that understand the propensity of cryptocurrency holders to hold or move assets based on perceived market conditions may be able to optimize their strategies for larger donations.
According to the paper:
“Our findings support actionable recommendations for how charities can design more targeted fundraising campaigns to take advantage of the cost and time efficiencies of cryptocurrency. By taking into account recent changes in cryptocurrency prices and emphasizing the urgency of giving, charities can More effective strategies can be devised to attract cryptocurrency donors.”
The team tested their hypothesis by conducting an empirical study of cryptocurrency donations to 117 campaigns on online crowdfunding platforms. They also conducted a controlled online experiment to study the characteristics of the cryptocurrency donation context.
After careful analysis, the team determined that market trends are directly related to donation “activation” (first donation) and donation size.
The paper says the online experiment extends the empirical analysis and demonstrates that “donors’ decisions are affected by recent asset price changes, consistent with the gambler’s fallacy heuristic.”
The gambler’s fallacy, also commonly known as the Monte Carlo fallacy, refers to the tendency for people to misinterpret statistically meaningless historical events, such as coin flips, as predictors of future odds.
As an example of the gambler’s fallacy, if a person flips a coin 10,000 times in a row and it comes up heads each time, an observer might think that the chance of tails is higher on the next toss because, as above “It’s due,” the film explains.
In fact, the odds of a coin landing heads or tails are always exactly 1 in 2, regardless of historical outcomes.
During the course of the study, researchers determined that participants were more likely to activate giving after experiencing a decrease in asset value. Allegedly, this happens because the donor is more confident that the price will increase after donating due to the gambler’s fallacy. “Moreover,” the paper continues, “we observed that participants’ reliance on the gambler’s fallacy was amplified when they faced an urgent call for donations.”
Ultimately, the paper concludes that these insights can serve as empirical evidence in the decision-making processes of organizations and individuals managing charities that accept cryptocurrency donations.
related: Blockchain in Charity Explained
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