Availability Heuristic in Trading

The Availability Heuristic is a mental shortcut where traders estimate the probability of an event based on how easily examples come to mind. In crypto markets, recent high-profile exchange hacks or extreme price spikes are easily recalled, causing traders to overestimate the likelihood of these events recurring.

This heuristic leads to skewed risk assessments, where traders may avoid a protocol due to a recent, singular negative news story despite strong fundamentals. Conversely, it may lead to FOMO if a token has recently been in the headlines for massive gains.

It causes traders to focus on vivid, memorable events rather than statistical realities.