Memetic Investment Tribes
If you have ever researched about financial markets or investment strategies on the Internet, you most likely have been in touch with memetic tribes (they are particularly abundant, active and antagonistic in the crypto space).
Memetic tribes can be very attractive. They can feel welcoming, lively, and intellectually stimulating. And they can even provide insights and advice that are a net positive to your financial wellbeing. But they do not come without risks.
Here are some guidelines for anyone willing to survive the encounter with these tribes, understand them, get as much value as possible, and thrive investing in an online world.
1. Context: The Social Construction of Value
How to Value an Asset?
Rational choice theory states that individuals use rational calculations to make rational choices and optimize their outcomes. So, in theory, rational individuals chasing profits and autonomously interacting in a free market, define asset prices.
But rationality is bounded by the mental models, cognitive capabilities and resource constraints of decision-making agents. And the outcomes we seek are themselves shaped by our worldviews and desires, which are, to a large extent, socially constructed.
“Man is the creature who does not know what to desire, and he turns to others in order to make up his mind. We desire what others desire because we imitate their desires.” René Girard, Violent Origins.
No One is Crazy, but No One is Alone
People from different generations, raised in different socio-cultural contexts, in different parts of the world, born into different economies, experiencing different market conditions with different incentives and different degrees of luck, develop very different views around finance.
As Morgan Housel states, everyone has its own unique experiences with how the world works, and every investment decision people make can be understood by taking the information they have and plugging it into their unique understanding of how the world works.
So “No One is Crazy”, though people can:
· Be misinformed, have incomplete information or be persuaded by propaganda.
· Fail at forecasting economic, social and political trends.
· Misjudge the consequences of their own actions.
· Have no idea what they are doing.
No one should expect that people who go through life with different beliefs and goals, agree on what matters most, what is likely to happen and what the best investment strategy is (even if they all act “rationally”). Yet herd behavior is very common in the financial markets, especially at the intersection of social networks and investing, because people share their experiences with others.
Memetic Tribes
The Internet is aflush with online subcultures built around the most varied investment strategies: Bogleheads, Goldbugs, Value Investors, Day Traders, Startup Angels or Stonk Investors, to name just a few.
Online subcultures are particularly abundant, active and antagonistic in the crypto space where Bitcoiners, Ethereans, DeFi Degens, Link Marines, Synthetix Spartans, Doge Moonboys, Punks, Apes, Mad Lads, and, more broadly, supporters of any blockchain, protocol or random token flourish.
A subculture or memetic tribe is a social group bound together by distinctive sets of shared ideas, beliefs, symbols, attitudes and practices that they enthusiastically advocate for and observe. Those units of cultural information (“memes” in Dawkins’ terminology) are spread by means of imitation from peer to peer, and are reinforced by social status systems, unique to each subculture, that reward and punish certain behaviors.
Multiple interrelated memes (a structured collection of memes or “meme complex”) collectively form a cohesive belief system or ideology that is propagated amongst the members of each tribe.
2. The Making of Investment Memes
The fun fact is that, for memes to successfully replicate, they do not necessarily have to be accurate, factual or even useful.
Contrary to inherited genes, memes encounter less pressure to provide benefits to the individuals exhibiting them. This is due to the fact that memes propagate virally via horizontal transmission, making their survival not solely dependent on the success of their hosts.
Also, market reflexivity promotes positive feedback loops that favor meme replication. Adoption of certain memes shape expectations of market participants, changing expectations affect prices, market prices do in fact influence the fundamentals of the market structure and these newly influenced fundamentals then help to spread those memes, thus changing expectations and influencing prices, in a process that continues in a self-reinforcing pattern.
Therefore, memetic investment tribes thrive based on their ability to popularize investment narratives, not on their ability to reach hard, factual, verifiable truths about the economic or social world.
The Lifecycle of an Investment Narrative
Narratives are stories, not scientific truths, and are only loosely linked:
1. Narratives start with obvious hard facts.
2. Investment theses are built upon those facts.
3. Details are forgotten and nuances are simplified.
4. Facts and investment theses are synthesized in narratives.
5. Narratives gain popularity and become memes.
6. Viral contagion drives market exuberance.
3. The Traps of Memetic Investment
Investment tribes can be very attractive. They can feel welcoming, lively, and intellectually stimulating. And they can even provide insights and advice that are a net positive to your financial wellbeing. But, before blindly embracing their creed, it is important to understand that there are reasons that can prevent tribes from being fully unbiased and trustworthy.
#1: Confirmation Bias and Groupthink
Humans are lazy by nature, so memetic investment tribes tend to skip the honest detailed discussion and jump to believe whatever confirms their ideologic prejudices. In doing so, they can elevate dubious hypotheses on uncertain topics, to the category of indisputable truths around how the world, the economy and humans work.
#2: Reactionary Conservatism
Memetic tribes not only take a biased snapshot of reality, but also project their desires into the future. They are not open to technical, social or economic change outside of their worldview. In fact, they tend to imagine only very extreme scenarios in which, either their maximalist views are magically applied in record time and Utopia is reached, or their views are ignored and some kind of catastrophic event takes place as a consequence.
#3: Conspiracy Thinking and Paranoia
As memetic tribes tend to ignore complexity, they can end up feeding conspiracy theories. In doing so, they also reinforce a sense of belonging to the group: conspiracies make members of the tribe feel special. They have been initiated into an exclusive secret society and hidden truths have been unveiled only to them.
#4: Clickbaiting
In order to gain share in the extremely competitive attention economy, memetic investment tribes may slide into sensationalist communication strategies: juicy headlines, oversimplifications, and catchy but grossly inaccurate metaphors.
#5: Vested Interest and Peer Pressure
For someone who has achieved certain status within a given social group, built a sizable investment portfolio aligned with certain narratives, developed a loyal audience for spreading recognizable memes, and even found a lucrative professional niche around an investment tribe, reassessing and publicly amending their beliefs is just way too costly.
#6: Magnet for Sociopaths
A successful memetic tribe is a treasure chest of cultural and social capital. The network of relations built between core contributors, hardcore fanatics, and the broader audience of supporters in a tribe can be priceless. At this stage, as MIT’s David Chapman puts it, subcultures are ripe for exploitation by sociopaths who know how to manipulate the tribe and extract money at the expense of its members.
4. Conclusion: Do Your Own Research
This is not a stance against online investment communities. Not even against the more radical and vocal tribes. The amount of valuable information and human connections available at a click distance is just unbelievable and its potential is enormous. This is just a heads up for anyone willing to venture into financial markets, get the most of the Internet, survive and thrive.
Try to remember the following:
I. Things Are Messy
We should always start by embracing reality and dealing with it:
· Look for detailed and exhaustive knowledge about specific facts.
· Do not blindly resort to given conceptual frameworks and try to fit the reality into them.
· Think from first principles and try to build your own frameworks.
· Keep in mind that your frameworks are limited by your own biases, incomplete and tentative.
II. The World Is Uncertain
Accept that markets are affected by social and political factors that introduce irreducible variability and uncertainty:
· Do not try to predict the future, lay out possible futures instead.
· Not everything can happen, but things that you do not expect can happen.
· Analyze what is more likely to happen, but factor in that your estimates may be wrong.
“The true logic of this world is the calculus of probabilities”. James Clerk Maxwell
III. Reality Is Up To Debate
Understand that the Internet is home to an adversarial market of controversial opinions:
· Social networks are flooded with a diverse set of voices.
· Words are polysemic and misunderstandings are very common.
· Beliefs are volatile and often arbitrary.
· Your interests may not be aligned with the goals of others.
· It is impossible to serve all of the memetic tribes at the same time.
