A talk with psych researcher Paul Delfabbro about cryptocurrency, problem gambling, and addiction. Delfabbro has done a lot of research on problem gambling and on addiction. He’s worked on several papers related to cryptocurrency, including “The psychology of cryptocurrency trading: Risk and protective factors” and “Cryptocurrency trading, gambling and problem gambling.”
Topics discussed include:
- How big a problem is problem gambling amongst cryptocurrency traders?
- What are some of the psych factors that can be present for the more addicted and cult-like crypto behaviors?
- Might covid have played a role in cryptocurrency price fluctuations?
- The role of the internet in amplifying temptations and addictions.
- The role of social media in getting people excited about cryptocurrency.
- Video game addiction.
- Can making a large bet/investment in something affect one’s beliefs (for example, a liberal makes a large bet on Trump to win for purely financial reasons but finds themselves rooting for Trump and therefore seeing the world differently)?
- Day trading and problem gambling.
A transcript is below.
Episode links:
Other resources related to or mentioned in our talk:
- Paul’s Google Scholar page
- Paper Paul worked on: The psychology of cryptocurrency trading: Risk and protective factors
- Paper Paul worked on: Cryptocurrency trading, gambling and problem gambling
- Paper Paul worked on: The role of structural characteristics in problematic video game play: An empirical study
TRANSCRIPT
[Note: transcripts will contain errors.]
Zach: Welcome to the People Who Read People podcast, with me, Zach Elwood. This is a podcast about better understanding other people, and better understanding ourselves. You can learn more about it at www.behavior-podcast.com.
On today’s episode I’ll be talking to psychology researcher Paul Delfabbro about cryptocurrency, and how some people’s crypto trading can be a form of problem gambling. We talk about addiction in general, about how the internet can contribute to online addictions, about day trading, about video game addiction, and more.
A little bit about Paul Delfabbro from his professor page at the University of Adelaide in Australia:
Paul has worked at the University of Adelaide since 2001 and he lectures in the areas of learning theory as well as methodology and statistics. His principal research interests are in the area of behavioural addictions (gambling and technology) as well as child protection and out-of-home care. Most of his research work involves statistical analysis of cross-sectional and longitudinal surveys and experimental studies.
I found Paul’s research because I’ve been interested in doing an episode about cryptocurrency and cryptocurrency-related psychology. A paper from 2021 by Paul, daniel King, and Jennifer Williams was titled “The psychology of cryptocurrency trading: Risk and protective factors.” To quote from that paper: “We review the specific psychological mechanisms that we propose to be particular risk factors for excessive crypto trading, including: over-estimations of the role of knowledge or skill, the fear of missing out (aka FOMO), preoccupation, and anticipated regret.” end quote.
Another paper Paul worked on was titled “ Cryptocurrency trading, gambling and problem gambling.”
One interesting thing about Paul’s work is that, for the purposes of studying it from a psychology point of view and a gambling behavior point of view, he’s had to learn a lot about it. For example, that first study I mentioned had an in-depth analysis of the various risks involved with cryptocurrency, and where those risks came from and why they existed. I mention this because Paul isn’t just knowledgeable about the psychology aspects of this, but he also seems quite knowledgeable about cryptocurrency in general.
Apart from cryptocurrency-related work, Paul has also worked on research regarding gambling addiction in general, including video game addiction, and has worked on conspiracy theory psychology.”
You can learn more about Paul Delfabbro by searching for his name and finding his University of Adelaide page and his Google Scholar page.
A note about this talk: I am pretty ignorant about cryptocurrency, so if I get any phrasing about it wrong, that’s why. And hopefully this is clear, but just in case: my choice of focusing on the more gambling-related and addiction-related aspects of cryptocurrency shouldn’t be interpreted as me having a negative view of cryptocurrency. It’s just that this is a psychology podcast, so I wanted to choose something psychology-related to focus on, and that seemed to be one of the main things to focus on.
As this episode relates to gambling, I wanted to briefly mention my own gambling-related work: if you didn’t already know, I’m the author of some well known books on poker behavior, also known as poker tells. My books have been called the best work on the subject by many poker players, both amateurs and professional players. My first book has been translated into eight languages. If you play poker, you might like checking out my site readingpokertells.com and reading the reviews. Okay, sorry for the shameless self-promotion.
Here’s the talk with Paul Delfabbro:
Zach: Hi Paul. Thanks for coming on.
Paul: Well, thank you for having me on.
Zach: Yeah. So you’ve done a wide range of psychology research and including a lot of things that are interesting to me personally, including problem gambling and addiction to technology and conspiracy theory beliefs.
So I’m curious what drives your research interests and other certain themes that, uh, you’re drawn to and, and what are the, what are those?
Paul: Yeah, my interest in gambling probably has a number of different, uh, influences. I, I think, um, my principal area, area of research or teaching interest has always been in learning and [00:04:00] behavior.
So I, I’ve always been interested in how very simple habitual behaviors are maintained by, uh, you know, schedules of reinforcement, simple stim and those sorts of things. So, slot machine gambling, uh, was something that’s always interested me because, uh, it seemed to be a, a natural human extension. Or some of the simple behaviors we see in animals.
So I’ve always had an interest from my undergraduate days in that type of simple behavior. I, I guess from a personal point of view, I, I had an, an uncle who owned a, a slot machine Mm. In a boys’ room many years ago when, uh, and, uh, we used to play it when I was a kid. And I, I used to see these machines, uh, in various locations and be curious about them.
And I think that’s, um. Sparked my interest, uh, from an early age. And, and then when, um, Australia started to introduce these machines, uh, particularly our state started to introduce these machines in the mid 1990s, uh, a time I started to do research. Uh, it, it almost all those, those I guess, earlier interests and the potential for this.
To be an interesting, [00:05:00] uh, topic for research and I guess regulation and, and just general public interest, uh, all came together, uh, for me to start doing that research in the 1990s. And I, I think what I really like about it is it provides an opportunity to apply some of the more abstract principles we learn in psychology to real world behavior.
Mm-hmm. So I think all those things coming together, um, created that interesting. Gambling conspiracy theories I think are, are a topic I’ve, I’ve come to a bit later. Uh, I think, I think it’s one of those topics which, uh, many people have, uh, views about. I think there are, as a, you know, general citizen, I think we should always be thinking about what government is doing.
And we, we certainly know that, you know, government doesn’t always tell us the truth about things and that’s for often quite legitimate reasons. Uh, we obviously don’t release all the current. Cabinet papers in Australia when things are happening. Uh, but we find out, you know, 20 years later, uh, what, what decisions the government’s making.
I think also it’s, it’s, uh, an interest that came about through the simple fact that I was a person who was born in the late sixties, who grew up in the [00:06:00] eighties when, in the nineties when, uh, all the stone was making conspiracy movies. Mm-hmm. And there’s always been a general interest, I guess, in this era about, you know, the JFK assassination and, and other similar stories.
And I think with gambling, you, you’re looking a lot at, um, a rational. Or beliefs as well about the nature of outcomes. And, uh, and given I also had a background in finance and economics, uh, I think all these things sort of came together for me to have a curiosity about why people believe certain, uh, extravagant beliefs, uh, particularly when there’s a lot of, not a lot of evidence to back them up.
Zach: Yeah, that’s interesting actually, as you were talking about that, I just made the connection, you know, there, there are a good amount of similarities you could find between, you know, gambling addiction and other. Irrational behaviors and conspiracy theories, like there could be some similar kind of addictive kind of things there that, that affect people’s behavior.
Would you, would you say that’s true?
Paul: Oh, for sure. I, I think, um, even though gambling is very driven by simple conditioning and, um, I. You know, very behaviorally based, uh, mechanisms. There [00:07:00] certainly is an element of irrational beliefs. So there’s been studies where you get people to verbalize their thoughts about, um, gambling outcomes.
So particularly when they play slot machines and you find that quite a lot of the information or things they say indicate the presence of quite common cognitive. Biases. So you certainly do see, um, beliefs such as that people believe the machines are pre-programmed to do certain things, or people will try to develop some personal relationships with machines.
Mm-hmm. Believing they can beat the odds. Now there is some sort of, like, with all these sort of things, some scic of truth there. We know for example, there’s, you know, talk of concepts such as Easter eggs, you know, people that are hidden, things that people might do the. Program has put in there to enable you to win.
Uh, but in general, um, the, the average person’s not gonna know anything like that. So to believe that you’ve got any control over these chance based devices, of course, entirely irrational.
Zach: Mm-hmm. It seems like there could be some connections the other way too, where. There can be elements of people getting, uh, maybe some, some ego boost or other kind of, [00:08:00] uh, pleasures from beliefs in conspiracy theories.
You know, even though some extreme beliefs in conspiracy theories can be quite self-destructive in a similar way to addictive. Behaviors. And yet there might be like different kinds of rewards for those kinds of beliefs. Do you, do you see some of that too?
Paul: Yeah. In, in my lectures, uh, I talk a lot about, uh, the illusion of control and some of these common cognitive beliefs and what are the psychological mechanisms that maintain them.
So part of it is, uh, motivational. People like to believe they’re in control of their lives. People often don’t like, um, uncertainty. Um, people also have. Brains, which are hardwired to find connections between things. So we have this natural tendency to want to see control. Mm-hmm. And we often, um, tend to do that most when we’re facing uncertainty or emotional turmoil.
So if we think back to some of the major crises of the world, you think of nine 11 and others. The remarkable number of, you know, uh, erroneous beliefs that emerged during that period, simply because people were looking for, um, ways to [00:09:00] explain the uncertainty to deal with their anxiety. Uh, and, and we know that with, um, many gamblers, they are quite anxious people sometimes, uh, has been seen in some cases as a, uh, form of coping, which is an anxiety based, um, behavior which makes, which is actually amenable to people having more of these sorts of beliefs.
Zach: Uh, maybe you could talk a bit about. How some people’s cryptocurrency trading has, uh, similarities or, or an overlap with, uh, problem gambling. And you talked in a couple of your papers about how, you know, crypto, for example, has a lot in common with day trading, and then for some day traders they day trading in ways that can be, you know, seen as, as, as problem gambling.
So maybe you could talk a little bit about that.
Paul: I guess the preface to this argument is that over the years we’ve, uh, been experiencing what’s called, uh, technological convergence, or digital convergence, which essentially means that in the past we were able to, uh, compartmentalize, you know, different activities.
We would go to the. Drive in or cinema to scene movies, we would play games somewhere else. We’d gamble [00:10:00] somewhere else. Of course, what’s happening now is that there’s an increasing blurring of lines between different activities because you can essentially use the same device, the same technology to, to gain access to all these different activities.
So over the years there’s certainly have been an increasing convergence of gaming and gambling. So we’re seeing increasing number of gambling, like elements emerging in games. Uh, people often talk about loop. Boxes has been one example of that. And increasingly, uh, you’re starting to see some elements of speculative trading starting to overlap a little bit with gambling.
Now, cryptocurrency obviously is, um. Something that’s been around for about a decade when Bitcoin was obviously ca came into being in 2009. But, um, certainly in the last five years, particularly 20 17, 20 18, uh, we sort, we had that, that that bull run, uh, in the markets. It has become a much. Uh, more well-known activity.
It’s still a very small proportion of population, you know, actually engaged in this, in any sort of regular, um, form. I think some of the surveys probably overestimate how many people are really doing [00:11:00] it. Um, but research that has been done suggests that those people who do engage in more speculative trading, whether it be day trading or whether it’s, um.
Crypto, uh, do share some characteristics with, with gambling. Other words, if you look at the, if you do a survey administering measures of gambling, trading crypto, you’ll find that statistically people who have an interest in gambling and even those who might have some problems with gambling, tend to be attracted to the sorts of activities which share, um, the characteristics of gambling.
And so people who are problem gamblers who play games will. Tend to be more likely to spend money on games and, and, and buy loot boxes and games. They similarly will also be more likely to engage in speculative trading with crypto, which is, which doesn’t have to be entirely that speculative if people take a longer term view, however.
Mm-hmm. Uh, statistically you would say that someone who’s already, uh, quite a regular gambler, um, is probably more vulnerable to the more speculative side of crypto trading. [00:12:00]
Zach: Yeah. They, it seems like the more frequent the, the trades are or the Yeah. The exchanges, the, the more likely it becomes that someone might, you know, be, become addicted to, to that rush it seems like.
Would you say that’s that’s true?
Paul: Yeah. The term rush is often used in more traditional addiction models where you’re talking about drugs and those sorts of things. And, uh, I, I would say that, that, yeah. Some Russian adrenaline would play a role in, in trading. I think people would certainly get quite a, um, you know, arousal response when they see, um, you know, a particular coin taking off, um, very quickly.
Uh, and it certainly will be the case with, with trading as well. So one of the things which has become a very important part of addiction research, uh, at least behavioral addiction research, which starts with gambling, has progress to gaming and, and other activities, is that we do realize technology does play a very important.
In the uptake of these activities. So we know that the level of involvement, the, uh, the extent to which you engage in impulsive behavior is very much influenced by the [00:13:00] accessibility of the behavior or the activities. So that if you have a 24 hour market, um, or. Which is available on a very convenient app, which you can take everywhere.
Uh, that does increase the, uh, opportunities for being preoccupied with the activity and monitoring the prices, maybe making impulse decisions, uh, about what you’re gonna buy and sell. So it’s certainly the case that I. The internet and the, I guess, the ability to carry it around your pocket, um, has made these sorts of activities potentially, um, yeah.
More common and potentially more addictive.
Zach: Yeah. The thing that really strikes me about this is the, the internet and internet-based technologies have just given us so much power at our fingertips. You know, just so much control, like the, whether it’s the ability to, uh, to gamble at any time, the ability to trade stocks or crypto at any time, the power to.
Run up a bunch of debts on credit cards, the ability to imitate other people and use fake names. The ability to watch porn at a moment’s notice, the ability [00:14:00] to meet up with people easily. It’s like these are all really powerful abilities that the internet gives us. And with that power comes a lot of, uh, temptation to engage in bad and destructive aspects of ourselves.
And in a way I think that, you know, just simply did not exist until. Pretty recently in the, in the, in the internet age. And I’m curious if you agree with all that and, and see the internet as generally amplifying addictive behaviors. And maybe you answered that a little bit, but maybe you can go into a little bit more detail.
Paul: Yeah. You, you could certainly argue that the, what the, um, internet does is it, uh, amplifi, it’s a bit like alcohol on mood. It’s, um, it amplifies, um, things which previously existed. And so one of the interesting things about the internet, I, I know I talk about in some of. Technology and psychology courses is that with some behaviors, you could argue they’ve been around forever or for, for a very long time.
So, pornography, gambling, various behaviors have always been there. And, and, and to the extent that the internet, [00:15:00] uh, is used for those behaviors, you could argue it’s more of a vehicle to make the, the activity easier to access rather than necessarily creating the activity. Mm-hmm. Whereas some forms of behavior such as, you know, compulsively checking social media, spending all your time on Facebook and.
Tweet tweeting all the time, um, is a behavior which has really only come about as a result of this technology. It’s hard to see as having a, uh, a similar historical, uh, antecedent. And so you could almost argue that addiction to social media. Uh, while I’ve had some, you know, rough. Sort of, uh, parallels in the past.
Um, it really is something, a phenomenon of the last decade. Mm-hmm. And so you could argue that behavior in particular, uh, particularly and the extent that social media was used to fuel these other behaviors, that’s really a phenomenon that’s occurred in the last few years. And you could argue probably the two thousands when that really started to take off.
And with the advent of, you know, mobile devices, which now we have the internet. Uh, on your phone and walking around, that of course takes it to another [00:16:00] level in that you’re able to do it at any time, any place.
Zach: Mm-hmm. And you’ve studied, um, addiction to video games, and maybe you could talk a little bit about that.
What are, what are some of the interesting things you found, uh, in that area? I.
Paul: Yeah, it’s, it’s a, it’s a topic which my colleague, uh, Daniel King has probably done, uh, most of the work. Um, I, I tend to do most of the gambling work, but mm-hmm. Certainly gambling, gaming has being of something of interest to me.
I’ve, you know, played video games like many people, right back to the, the eighties. My teenage years were very much like the show Stranger Things. Um, and I remember the days of, you know, the noisy arcades and, uh, those simple handheld games and how the gradual console. Well developed. Uh, there’s been a lot of discussion, um, internationally about, um, gaming and whether it’s, uh, can be a form of addiction and, and the World Health Organization take quite a lot of discussions about, uh, this topic and, uh, looking at its ways, whe whether or not, you know, internet gaming disorder should be a, a valid addiction.
And of course, it has been recognized in some of the [00:17:00] measurement, um, consensus as a, as a, a valid form of addiction and that they tended. To map it to what we know about gambling. So people who might be, uh, have addiction to gaming, you know, spend too much time doing it, they’re preoccupied. They, uh, tend to spend a, an ordinate amount of time doing it.
Uh, when it comes to the harms associated with it, it’s not quite the same as gambling in that people don’t spend quite so much money. They’re not usually a financial risk from it, but what they tend to do is just run their health down. So they spend a lot of time eating bad food, not sleeping. You know, not, not studying, working.
So gaming tends to sort of ease away at people’s other activities and their health. I think that seems to be the principle consequence. We, we have encountered some clinical cases where people have just spent, simply spent, you know, weeks in their room really coming out very infrequently or even going to the bathroom, you know, to, to, to continue to gain.
And we know that’s a phenomenon that’s perhaps been documented. To a greater degree in some of the major Asian countries such as South Korea [00:18:00] and Japan in particular, where young people just disappear. And you, you don’t even know they’re alive, apart from the fact that the tray comes out with, um, no food on it.
Uh, and so that, that, that’s, so gaming is certainly a topic which has been, um. Of increasing interest to researchers. And we find these days, it’s, it’s when parents ring us up about, um, young people, it’s, it’s usually about gaming and not about gambling anymore.
Zach: Hmm. So, uh, getting to the, uh, cryptocurrency, I don’t have much opinion about CRI cryptocurrency in general, and I see the positive aspects of it that many people talk about.
It’s decentralized nature and, but I also just don’t have much opinions because it’s, it seems very. Unc to me, what will happen with it? You know, there’s, there’s just so many factors, it seems to me, uh, for the whole industry, let alone, you know, specific coins. Uh, but one thing I notice with some people, it seems like there’s a high amount of certainty from some people, almost like a, a faith like certainty that some people have, uh, you know, acting as if [00:19:00] this is a certainty that a cryptocurrency will be the future or, or be a, a specific coin.
Will be the future. Future. Clearly not everyone who says those kinds of things, uh, actually has a faith like belief, I think. But it seems like a lot of people really do and I’m, I’m curious if you see that kind of what I view as an unreasonable amount of certainty and such things. Do you see that kind of certainty, faith, like certainty as being related to.
Addictive behaviors?
Paul: Yeah. Not, not really. I, I guess, uh, what I’ve observed from looking at the, the crypto market is that it has changed, uh, dramatically over the last four years. I think there are some certainties, I think, to do with this technology as there were with the internet, I think, and many of the baits, which were raised about the internet back, um, in the.
Late, uh, 1990s and even early two thousands, there were some people still talking about, uh, the internet as not really being something that was gonna be viable for, for many purposes, which we now, of course commonly use it for every day. I mean, going back even [00:20:00] further, there were, people were saying that airplanes weren’t gonna be very useful in warfare back in the early 1920s.
I think some certainties are that blockchain’s definitely here to stay. I think Bitcoin as a. As a, you know, a, something with a established protocol, limited supply, um, you know, fairly widespread. Um, ownership, uh, I think is probably here to stay. And some of the major, um, you know, Ethereum is probably another one, which I think is, is probably here to stay.
I think we could certainly say that blockchain and cryptocurrency are gonna be part of the future and. What we’re seeing in the last four years, there’s been a major shift from much of the crypto market being all about speculative retail investors, which we saw particularly in 20 17, 18 to in the last two years, massive institutional involvement.
So at the moment we’ve seen a market where whereby, I think there’s a Bitcoin conference going on in Miami at the moment, and apparently the whole first day is all just. Big institutions. Um, and you look at Google Trends, hardly any retail investors are really searching the word Bitcoin and crypto. It’s all institutional investors.
So we’ve [00:21:00] sort of gone from it being a, a very speculative fringe activity to one, which I think is now being picked up by the smart money. But the issue still is that it’s a, it’s still a very new and un in many cases, unregulated market, whereby there are some things which are now a bit more, um, certain.
Uh, but, but there is still a considerable, um, you know, number of scams and uncertainty and certainly not a lot of consumer information out there, which therefore means that retail investors, when they do come back into the market, are gonna be vulnerable to the same sorts of speculation, uh, and problems that we’ve seen in previous years.
Mm-hmm.
Zach: Yeah, and I guess what I’m talking about the. You know, some of the extreme certainty is, is things, people will say things like Bitcoin is definitely going to a hundred thousand, you know, um, per Bitcoin in the next whatever length of time. Or, uh, this will be the, the coin of the future. Like, almost like this, uh, very, very extreme belief in things that I think are [00:22:00] just unknown.
You know, like what, I have no doubt that crypto current or the blockchain kind of technology will be around for a while. It’s just, uh. I’m talking about the, yeah, the, the, the more, the very confident beliefs, which, which seemed to me either to be. Kind of almost cult-like? Or, or, or just, I think some people are just as, as people do, they’ll, they’ll express confidence in order, in order to convince others of their beliefs.
Paul: Yeah, I think that’s a very valid observation of, uh, certainly what happened last year. I think there was a lot of, one of the problems with, uh, this market, there’s not a lot of data points on which to draw comparison. So that there, the bitcoin markets tend to move in cycles every four years based on the halving and so.
What you notice in the social media influences is they often map what’s gonna happen based upon what’s happened in the past. So they fall victim to the classic inductive logic whereby they say, well, this is what’s happened in the past, and they get these fancy charts out and map it and they have these models.
Right. It’s
Zach: just such a short Yeah, it’s such a short timeframe. Yeah. [00:23:00] Yes, yes. So
Paul: that there, there was a course, anyone who’s listening who knows about the crypto market will know that there was this guy called Plan B who had this doctor flow model and various other models that were. Convinced, convincing everyone he got right for several months and then Bitcoin was gonna go up to a hundred thousand or more by the end of the year.
We’re gonna see, you know, this big bull run similar to 2017. Of course it didn’t happen. Even some of the top guys were, were caught out by it not happening because so much of what happens in the market is dictated by larger macro factors rather than what happens on these charts. So it is certainly the case that, um.
You have influencers who, who make a lot of money from running their, their YouTube channels, and they want to keep their, uh, audience, uh, interested. They wanna keep them motivated. This is quite often, uh, retail investors, although I, I would say at the moment, people who are listening to the more serious ones, uh, tend to be probably more serious long-term investors.
Um, what you tend to find is when the market goes down, it’s not doing so well, which is. Currently what we’re seeing at the moment, um, [00:24:00] you’ll see a massive drop in the number of, uh, people watching these social influences. And the more, I guess, uh, fringe and the more extreme ones who have less experience, um, in investing in general tend to disappear from, from YouTube.
And then when the market picks up again, suddenly the, the meme coins are all popping. And you suddenly see all these people coming back outta the woodwork. Promoting, um, pretty limited speculative knowledge to, uh, inexperienced retail investors. But certainly I agree with the cult-like nature of some of the beliefs.
I think there is a, uh, this is where it does overlap a little bit with the conspiracy beliefs. Just occasionally you see, uh, even some of the more experienced, uh, very competent influence if, if you’ve watched some of them, uh, they’ll drop a few words here and there, which, um, indicate they might be sympathetic to some of the more extreme beliefs.
So, for example, I see sometimes the word. Name, Rothchild will be dropped, or they’ll talk about bail-in, that’s one of the thing, you know, banks that you, you can lose your withdrawal or, or your deposits in banks. If banks can’t run into trouble. [00:25:00] Um, they pushed the, uh, the inflation narrative very hard that, you know, Bitcoin is a store of value against inflation.
Well, in the last 12 months, you’d probably say it’s probably done over a decade, has done much better than gold. But however, uh, I think in the short term. If Bitcoin’s going up and down it, I’m not sure how strong that narrative is. I think over, over a longer period, certainly like any other hard asset or any asset, you’d probably say, well, uh, you wanna have money in Bitcoin and, and cash over for the next five years or 10 years.
However, in the short term, when there’s inflation, Bitcoin could go up and down. So you’re not quite sure, um, whether it’s going to, um, hold its value across 12 months. And this is of course, the issue of, of using Bitcoin as a form of payment. Um, if it goes up and down in value, I think this is what’s been found in El Salvador.
Uh, people might find it as a useful asset, but then there are problems if it goes down in value. When you wanna go and spend it. Now this, this happens, um, to Australians as well. I mean, we have, our currency, um, has, has dropped, you know, very low in, [00:26:00] in previous periods. Uh, I don’t wanna say that, uh, I think Americans have probably never had the experience of having your currency suddenly worth about, uh, 40% less than what it was worth.
You know, a few months earlier, back in 20, I think 2001, US Australian dollar was 47 US cents. Mm. Um, and of course now it’s, you know, mid, mid seventies. So we have drop. Uh, significant drops in currency. And of course there are other people in the world who might for whom that the Bitcoin narrative might be stronger, uh, like Argentina and other country, Turkey, where you do have very significant depreciation in your currency.
Um, but certainly, uh, there are challenges with using, uh, cryptocurrency as a, uh, a store of value like, like fiat currency, because one, you’ve got the issue of it. You know, potentially going down. The second issue is, at the moment, is treated as an asset. So when you spend it and dispose of it, there are potential capital gains implications.
Zach: Mm-hmm. Right? How big a problem I. Do you think, have you seen any data on how big a problem problem gambling is in cryptocurrency trading? [00:27:00]
Paul: Yeah. I, I wouldn’t, I wouldn’t think, um, that cryptocurrency will be a major cause of problem gambling. Um, if you, if you look at the, for example, at Australia, for example, which has one of the highest, um, rates of gambling exp expense, probably the highest.
Per cap expenditure of gambling in the world. Um, something like 70 to 80% of all problem gambling comes from salt machines. So it, and that’s because it’s very attractive to both men and women of different ages, whereas cryptocurrency tends to attract a very narrow band of the population. So when you look at those who do it quite regularly, who put reasonable money into it, it tends to be younger males who are into it.
I’d say proc characterize 85% of the, of the investors. So you tend to have people who are already into what you find is that those, um, sort of people tend to already gamble on sports. They gamble on casino games. They have a wider range of, uh, of activity preferences. And so like with sports betting, uh, even though it’s the most, probably the form of gambling, which is growing the most, it’s still a very small [00:28:00] activity relative to the salt machines.
Mm-hmm.
Zach: And so crypto made big gains, some of its biggest gains. Post COVID. Uh, COVID hit early 2020, and then in October of 2020, Bitcoin really took off in a, in a large way. And I’m curious if you have any opinions on whether you saw any COVID related psychological effects going on in terms of maybe COVID lockdowns and financial and existential stressors making people.
More likely to speculate and more likely to basically gamble, things like that.
Paul: Yeah, I, I think there’s certainly an argument that people were thinking, um, about changing their lives during the COVID period. I think it made people reevaluate their, their lives. I think many people, I. Uh, have also reevaluated the abuse of governments quite a bit during that period too.
I think government doing some good things during the course of the pandemic, and also I think some very bad things. We’ve had some particularly extreme government behavior in Australia, particularly in Victoria. We’ve seen some pretty extreme behavior in Canada recently from governments, [00:29:00] whereas other governments have been, I think China probably an example now.
Whereas we’ve seen other countries take a more, uh, more reasonable view and so we’ve seen in some ways the best and worst of what government can offer in the last sort, uh, two decades, so many people. Last two years, I think people have, you know, started to, to rethink the nature of the world and how they, you know, manage their finances.
We know that people will save a lot of money during the COVID period. They also were given, uh, quite a lot of, um, stimulus money. Uh, there’s a lot of quantitative easing occurring during that period. So, so it will be the case that. All the conditions were rife, ripe for a, you know, an asset bubble where people would put money into renovating their house, buying shares, buying, buying crypto.
And that would certainly be the case that young people would be attracted to, to that. I think the, the growth in the, in the Bitcoin price last year obviously had a lot of different causes. I mean, the halving of Bitcoin occurred in 2020, I think, or 19. So it was sort of naturally going up anyway during that period.
Uh, we also, uh, had the, yeah, all the stimulus money coming [00:30:00] into the market. Which would’ve pushed up the speculative trading. So I think, I think there were a number of things which came together during that period to, uh, to push up the price. It, at the moment, I think we’re in a state of great uncertainty in the world about many aspects of finance.
So it’d be interesting to see, uh, what plays out in the next, um, couple of years.
Zach: I was curious, are there, are there, is there an increase when, when there, when times are tough in general? Aren’t there some studies that show like there’s an increase in, you know, things like, uh, gambling and, uh, alcohol use and things like that?
Or am I, uh, getting that wrong? I.
Paul: Yeah, I, I think that there’s some evidence for that. I mean, during the COVID period, uh, people didn’t have much else to do. And in fact, um, yeah, alcohol consumption gaining certainly increased dramatically during that period. It’s, mm, it’s difficult to, to know whether it’s caused by, um, the fact that people were bored, didn’t have much else to do, then stay at home and, and do it.
So if you, if you have a, if you just imagine holding all things constant that people drink a certain amount per week and all, if all. Pubs and clubs are closed during that period. [00:31:00] Where else would you drink that? But then, but at home. And so you, you, you obviously go to the bottle shop and buy drinks and take them home.
And so it might be that’s, uh, you know, if you’re seeing greater alcohol purchases in people’s budgets, that would just be a reflection of them re diverting their, uh, going out and having a drink. Money back, back home. And I think with the gambling, it’s, that’s been the same. We’ve seen spikes in gambling activity in some of the states of Australia, uh, in recent months.
But that could be, ’cause people had that money saved away that they otherwise would’ve spent over a more gradual period. Mm-hmm. It could be that, that they’re spending their sort of, um, need for going out, uh, in a more concentrated period.
Zach: Right. It’s complex, like most things. It’s, uh, hard to. Boil it down to a, a single thing.
Uh, so when you were talking about the sort of like the Rothschild’s, uh, conspiracy theory kind of beliefs, uh, one thing I have thought about cryptocurrency in that area is there can be an element of the sheer fact of investing money in something can change someone’s thoughts [00:32:00] and beliefs. Uh, you know, for example, if, uh, someone who’s invested a good amount of money into cryptocurrency and then.
That there can be a psychological pressure to really start to believe in cryptocurrency, even though at first the, the inclination was, or the motivation was just to see it go up. But by hoping it goes up, you might start believing, really believing in the, in the mission and, uh, your, your beliefs might change.
And to make an analogy, it might be like somebody who’s a. Politically liberal person who places a big bet on Donald Trump winning the election for purely financial reasons. And then they actually start to somewhat hope a bit for Trump’s win. Uh, and that hope, that feeling of hope might change their beliefs in some way.
Make them look at things from a different angle, maybe somewhat against their initial wishes. And as someone who’s gambled on a few political events, myself, I felt a little bit of this finding myself looking at things from. New perspectives or, or feeling emotionally pulled in kind of weird ways, just solely due to the [00:33:00] money I’d bet on something.
And I’m curious if you see some of that in the cryptocurrency area where I think there can be, because people, uh, hope for cryptocurrency to succeed. They start resenting, uh, uh, they might start resenting a bit the, you know, the, the government forces or the, or the social forces or, uh, that, that are holding cryptocurrency back that they perceive as, as holding.
Cryptocurrency back, like people’s idiocy for not getting it, things like this. Uh, and, and that can kind of foster kind of an anti, not antisocial, but maybe like antisocial in some senses, uh, perspective. But I’m curious if you have thought about that angle of things about how placing bets. Can, can change people’s ideas.
Paul: I think that’s very true. Um, what you do see, once people have a, um, a financial investment or stake in a particular cryptocurrency, they become very defensive about it. They will engage in quite a bit of confirmation bias. They’ll, they’ll be looking around to read material or look at [00:34:00] influencers who are, uh, backing up their views about that particular coin.
They wanna read stuff to validate the decision they’ve already made. Talk about their membership ownership in, um, certain coins as almost like a form of club. So, you know, people who invest in Chainlink talk about themselves as being part of the Link Army. And you get, you know, I’m not sure that there are lunatics for, for Luna Terror Luna.
Yeah. People, um, always feel like they belong to a club when they own a particular coin and they get quite resentful when. People criticize, um, that bitcoin, knowing that if it’s been done by a leading influencer that can potentially, uh, drop or suppress the price. Now, I think it’s quite important to have objective analysis of some, even some of the good projects, which may well still be good projects longer term, but I think certainly, um, it is a rational when people start to attack those who are providing fairly legitimate, uh, objective appraisals or technology.
Uh, I think, I think the, the crypto industry, um, does have some. Having sort of been academics of writing [00:35:00] about it, you, you do see some. Yeah. While you do see this sort of almost cult-like faith in the technology, uh, and the future, sometimes you do also see sometimes the frustration of some of the, you know, very well-informed, um, tech guys when they get, uh, they’re faced with sort of quite obvious ignorance from politicians who are making very important decisions about the industry.
I think, um, I. There’s always this classic, they always talk about the FUD associated with, with crypto, and one of them of course is it facilitates crime when in fact we know that it’s very easy to track, um, transactions on, uh, on blockchain much more easily than it is with via currency, which is of course the, uh, vehicle of choice for most organized crime.
And I guess the, the environmental fund gets dug out. We know that, you know, Bitcoin uses a lot of power, but increasing, we know it’s an increasing amount of renewables being used and we know that, uh. Gold mining is, you know, and banking uses a lot of power too. So, um, and you know, China banning Bitcoin, I think South Park’s even done a Skittle on that one.
It’s sort of [00:36:00] thrown out whenever they wanna drop the price. It’s one of those things. So you do see, um, some reason why some of these, um. Influencers almost feel like there’s a bit of a conspiracy against the technology. And I think mm-hmm. We do see that with some of the senior, you know, um, politicians. I think some, um, seem very, uh, articulate and knowledgeable about the, uh, technology.
I think sim similar alumnus, I think you probably know, uh, seems, uh, even Ted Cruz I think is even, I think he mentioned, um, is, is said some sensible things about it. But you get other, uh, people who I sort of feel. Probably ask questions in some of those Senate inquiries, which indicate they don’t really understand the technologies.
I think so I think that the bottom line is that, yeah, it, it bes those who make important decisions about this new technology as well as the casemaker with the internet days to make sure they’re fully appraised of all the um. You know, the pros and cons, both sides of the arguments. Uh, and not to be driven by ideological views about these things.
’cause the internet could easily have been banned. Uh, if we had, if we raised concerns about, I think certain, you know, rules were [00:37:00] passed back in those days, which made the internet possible. Um, and if, you know, the, the legislation had been too harsh back in those days, it might not have, uh, evolved to what it’s today.
Zach: Mm-hmm. Yeah. It seems like, uh, the thing that strikes me there is, there’s, there’s plenty of reasons to, uh, understand. Reasons for why, uh, you know, society might, uh, not adopt this quickly. You know, like, just like, it doesn’t a, a adapt anything very, very quickly. And, uh, so there can be yeah, legitimate, quite understandable reasons, uh, and on both sides, like to, to think more about it and then, you know, and then there’s people that just really don’t get it.
But the thing that strikes me is, um, I, I think there’re gonna be an element of, because I, you know, because I’ve invested a lot of money in this thing. I’m very, um, I’m very frustrated with it, with it not taking off in the way that it is clearly obvious to me. And, and that leads to, I, I kind of joked about this online that I, I, I actually had bought a good amount of cryptocurrency and then sold a good amount of that off.
And I [00:38:00] joked that because I’d done that, I, I was happy with it going up or down. ’cause if it went up, I, I was like, oh, well, at least I have some. But if it went down, I was like, uh, well, okay. I was smart for selling some off. Right? So I, it was kind of this, uh, idea that. Our, our, uh, our trades, we make our, our gambles, we make can, you know, influence, uh, our feelings and then our feelings can influence our beliefs.
And that, that was kind of the, uh, the idea I was getting at.
Paul: Yeah, I, I think the general view I have of, um, cryptocurrency is that, uh, it, it needs sensible regulation. I think at the moment I think there does need to be more, um, regulatory. Uh, oversight. And I think what, on the problems of regulation, it tends to be sort of chasing, you know, technicalities to do what’s a security and what’s not.
Uh, as opposed to, you know, just fundamentals to do with consumer protection, which, which may be related to that as well. I know, uh, I, I think that, you know, when you see quite a few scams out there, people putting up projects with nameless. People who, there’s no real accountability, no sort of clarity about who’s doing it, and no [00:39:00] clarity about what information’s being provided to, you know, consumers about the token ons and fundamentals of some of these projects.
I think that’s where people are being, being scammed, even with what might be considered, uh, legitimate projects. I think that’s important. And I think for just general advice on, um, there’s no easy money in the world. There’s, there’s no. Um, crypto can be gambling, but it can, can also be investment. And I think what everything converges on is that, uh, everything has to be taken with a long-term perspective.
That like with, you know, shares of the, you know, technology based shares of the late 1990s, they went up and down, crashed, went up again. Um, people have to look at sort of fundamentals, look at, um. Research things properly and take a longer term perspective like an investor rather than, um, and if they are going to do any sort of speculation or short term, it should be small value what people can afford, and knowing that is like gambling, that you would expect to lose your money.
And that, uh, any sort of short term gains really should be put into the safer longer term plays. And I think Bitcoin, probably Ethereum [00:40:00] and some of these top protocols probably will be around in five years. But, uh, as people often say, um, when you. Uh, 2018. Many, many of those coins have gone and that could happen with some of these very promising protocols people have great faith in.
Now,
Zach: Paul and I got a late start for our talk, due to some tech problems, and I didn’t get a chance to ask him all the questions I was curious about. But I emailed him some of those questions and he sent me some responses, so I’ll just read a few of his thoughts.
One question I sent him was: “Regarding day trading: I think it’s underappreciated how much day trading is tied to problem gambling. I personally know someone whose father was a day trader who lost all their family’s money and ran up debts and ruined his children’s credit scores by taking out debts in their name. How big a problem is problem gambling when it comes to day trading?”
Paul wrote back: “The two behaviours are related. Those who engage in gambling and/or day trading are statistically more likely to engage in other activity. This is part due to 3rd variables (gender, higher social economic status, often higher education + impulsivity). There will be many day traders or TA guys who hate gambling, but being a gambler and a day trader would pose some risk because the trading is likely to be more like gambling.” end quote
Another question I sent him was: With the advance of the internet and trading algorithms and machine learning and such, it would seem to me almost impossible for day traders to have an edge, unless they were very skilled. Am I wrong on that? If I’m right, does that mean that almost everyone who engages in day trading these days, all the amateurs who do that and who aren’t professionals, that almost all of them may have a problem?
Paul responded: “Some can do it, but it is rare. Kahneman talks about this in Thinking Fast and Slow. The best performers are often not the same from one year to the next because trading performance is not consistent. Amateurs are unlikely to do well from this. The top guys who do OK tend to profit from having inexperienced people who provide the liquidity: who buy high and sell low. So, a lot of it is simply being better than others vs. actually really being all that good in technical terms. The extreme volatility and insider knowledge of what is likely to ‘pop’ is what gives the more experienced people the edge. They also have research teams who are doing the background work, e.g., following Discords, etc. to see what is likely to be appealing to retain investors.” end quote
A note here that what Paul says here about experienced operators profiting from inexperienced operators, who provide the liquidity, is much like the poker world. The main reason it is possible to be a professional poker player is just that so many people over-rate their skill at poker and just don’t see all the angles and complexity involved, and that’s what allows the more experienced players to reap their profits .
Another question I sent Paul was: “How much of a role does ego and Dunning-Kruger type effects play in problem gambling? One thing that strikes me about problem gambling in poker and day trading and such is that, because they are such complex endeavors with so many factors present, and such swings even when you’re very skilled, is that it’s easier to convince yourself that you’re just getting lucky, that you are skilled but just having bad luck. The complexity of the endeavor makes it possible for some very smart people to have a problem and not realize it, or be more easily able to avoid it, anyway, in a way that wouldn’t be possible for simpler endeavors like slots or blackjacks. Do you agree with that and can the complexity of the game be a big factor in problem gambling?”
Paul wrote the following: “Yes, that can play a role. One reason I follow some of the influencers is that they are very bright and rational and experienced, e.g., Ben Cowen; James from Invest Answers; Rob from Digital Asset News. They play it quite safe: very long term; Ben calls TA ‘dubious speculation’. They stick with the big projects only and only put small %s into more speculative stuff; take profits, buy low. Many of the top guys were caught in the 2017 and 18 and admit openly to their mistakes and have learned from them. I don’t see a lot of the Dunning Kruger effect in crypto.
Anyone who is very confident and sure- is probably going to get wrecked.” end quote
Another question I sent was: An interesting aspect with crypto is how much social media may be playing a role. Social media, as we’ve seen with things like the Arab Spring and the George Floyd-related protests, is a powerful tool for focusing a lot of people’s attention on something. It allows for a sustained focus on something across a large population for a long period of time in a way that just wasn’t possible pre-internet. And the internet is kind of a weird place because it is a distorted view of things, in that a relatively small number of people can give a perception that something huge is happening. And that sustained emotional focus can have other effects, like leading bystanders to have a fear of missing out, and leading people to think that because many people are passionate and confident about something, that it must be something real and exciting, things like this. So I’m curious how you see social media as affecting people’s cryptocurrency behaviors and maybe digital addictions in general.
Paul wrote the following: “Yes, definitely. Social media is not playing much of a role at the moment because a lot of the retail interest is gone from the market. However, when the market goes up, then retail comes back in and social media explodes. There will be thousands of videos with people promoting the most speculative of coins. The dodgy ones are those who promote tokens which they picked up a low prices in IDOs and which retail is now buying at a much higher price. It’s a complete conflict of interest.
I see some influencers promoting projects that they provided venture capital for.
The most risky videos are those telling you to buy coins. If the coin is known then it probably has already gone up and therefore is riskier.” end quote
Okay this has been an episode featuring psychology researcher Paul Delfabbro.
This has been the People Who Read People podcast with me, Zach Elwood. To learn more about this podcast, go to behavior-podcast.com. If you’ve enjoyed this podcast, I’d hugely appreciate a rating or review on iTunes or another podcast platform. I don’t make any money on this podcast and I spent a good deal of time and effort on it, so any way you can help me is greatly appreciated. Sharing episodes with your friends and family is also hugely appreciated. If you wanted to show some financial support, I have a Patreon at patreon.com/zachelwood, that’s ZACH ELWOOD. If you donate to my Patreon I’ll send you some occasional updates on projects I’m working on and ask your opinion, things like that.
And if you’re a poker player, just a reminder that I’ve done some poker tells work and you can read about that at my site readingpokertells.com.
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Thanks for listening.