What is Unit Bias in Psychology and Finance? (Important Crypto Implications)

Humans prefer whole numbers.

For example, the brain has an easy time paying 1500 PLS for a coffee.

Comparatively, paying 0.000431 BTC for a sandwich is cumbersome and annoying.

This blog post explores unit bias in psychology, crypto and finance. 

What is Unit Bias in Psychology?

Unit bias is a powerful force in psychology that is evident in various types of consumption. 

Humans prefer not to bite off more than they can chew, literally. Unit bias in psychology suggests that the size of a meal portion determines how much someone will eat. Research shows people will feel satisfied with smaller portions, even on the holidays, if they are convinced that it’s an appropriate portion. 

Unit bias in psychology can also work against someone. A store might sell both 12-ounce and 24-ounce bottles of soda as single units. While the larger size is viewed as a single unit too, it’s more than double the size of a single serving of soda. 

Unit bias can be influenced by the region. For example, portion sizes are smaller in France than they are in the U.S. So unit bias prevents the French from having bigger meals unless they desire multiple portions. Unit bias can prevent people from consuming multiple units. 

Humans associate food in consumable units — whether it’s a single piece of candy or a plate full of food. This bias also plays out in the serving size. If someone is given a small ladle for soup, they’ll take a modest amount. But if given a larger ladle to scoop from, the serving size they pour is likely to be larger. 

What is Unit Bias Crypto?

In the context of crypto, unit bias refers to the psychological bias where individuals are inclined to favor or perceive lower-priced units or tokens as more desirable or valuable. This bias can influence investment decisions and market perceptions, regardless of the actual value or potential of the cryptocurrency.

Cryptocurrency prices range from fractions of a penny to tens of thousands of dollars, when expressed in USD. There’s a great opportunity for unit bias to surface in the crypto markets. 

For example, if a cryptocurrency has multiple zeros attached to it, investors are likely to perceive it as having the greatest potential to appreciate in value. They are also more likely to follow the path of least resistance when it comes to spending,  i.e. 10 dollars versus 0.00234 dollars. 

Cryptocurrency investors have proven a willingness to go against the tide. But they are also subject to unit bias in the way that they approach crypto prices, investing and spending. This could work to their disadvantage if they’re not careful.  

One way to view unit bias in crypto is that investors would prefer to own a whole token over fractional ownership. Therefore they only consider the prices of digital assets that they afford to buy in whole units. 

This thinking could deter them from investing in a higher-priced asset like Bitcoin or Ethereum despite the fact that crypto exchanges would allow them to own a fraction of those coins. So they go for the Altcoins that they can afford without prioritizing opportunity over unit bias. 

Take Bitcoin. Each bitcoin comprises 100 million units, or sats. The sats are named after Bitcoin founder Satoshi Nakamoto. Sats are akin to pennies in some ways. But the key difference is that while a penny equals 0.01 USD, a sat has much more zeros involved —  0.00000001 BTC. 

More people own fractions of a bitcoin (between 1 and 100 million sats) vs. owning an entire BTC. Investors willing to forego unit bias have adopted a mentality to “stack sats” until they can eventually own an entire bitcoin. 

Ethereum is also priced in units, known as wei. As cryptocurrency exchange Gemini explains, one wei “is equivalent to 10^-18 ETH. In other words, one ETH is equal to 1,000,000,000,000,000,000 wei — or one wei is equal to 0.000000000000000001 ETH.” 

Ethereum has also adopted a different denomination known as gwei, which is 1 million wei. This simplifies the expression of gas fees. As Gemini explains, “rather than saying the gas cost is 0.000000001 ETH, most would say 1 gwei.” 

The risk of unit bias in crypto is that investors can opt for cheaper assets so they can own more whole units. By doing this, they miss out on the potential of higher-priced assets in which they can invest fractionally. 

In some cases, investors don’t have to fight unit bias if the crypto they can afford also happens to present a good value. The point is, don’t let the numbers guide you, unless maybe it’s the market cap. Otherwise you could be playing a fool’s game.

Conclusion

Unit bias is all around us whether people realize it or not. It’s evident in everything from the way people consume to how they invest their money.

But just because a unit is presented in a certain way doesn’t mean that it’s the best way. It takes independent thinking to see the forest from the trees and go against the tide of unit bias, whether it’s in psychology or finance.