CAN CRYPTOCURRENCY CREATE A SELF-FULFILLING PROPHECY?
PART I
Working Paper
August 2017
Can Cryptocurrency Create a Self-Fulfilling Prophecy?
I. Self-Fulfilling Prophecies A self-fulfilling prophecy is a prediction that causes itself to become true. It does so by influencing people to act in a certain way, so that their actions based on the prediction ultimately fulfill it. The prediction thus contributes to its own accomplishment. The effects of this phenomenon are well documented in real-life. In a perhaps best-known example, a study led by Robert Rosenthal, showed that if teachers were led to expect better performance from randomly selected children, these children's performance was indeed better than their peers.
In the Rosenthal–Jacobson study, the researchers informed the teachers in a California elementary school that five of their students per class had been identified as 'academic spurters.' The teachers were led to believe that these 'academic spurters' had been determined by prior IQ testing, when instead they were selected completely at random. Given the random selection, there should not have been any significant difference in their academic performance relative to the other students. Sure enough, however, by the end of the study, the five randomly selected children outperformed the other students.
The phenomenon of the so-called Thucydides’s Trap, or the "inevitability of war" is a self-fulfilling prophecy that has received considerable study. Named after the Greek philosopher Thucydides who observed when a rising power threatens to displace a ruling power, a war almost always ensues.
The effects of self-fulfilling prophecies can be found in numerous social phenomena – stock markets panic episodes and speculative bubble episodes can be triggered with the belief that the stock will go down (or up), thus starting the selling/buying mass move. Similarly bank runs occur, when a false belief in a bank's insolvency prompts a large number of customers to withdraw their deposits in a short period, thus causing the bank to become insolvent, such as during the Greek crisis in 2015 when people withdrew more than 2 billion euro in little over a month, forcing the Government to close banks for 7 days.
II. Self-Fulfilling Prophecy in cryptocurrency markets In this paper we investigate whether self-fulfilling prophecies play a role in cryptocurrency valuations. We believe the current environment presents a unique opportunity for real life research on self-fulfilling prophecy phenomena. To test our hypothesis [REDACTED] we devise an experiment [See Part III].
The irony of behavioral psychology researchers studying the exuberance in cryptocurrencies by issuing their own cryptocurrency is not lost on us. Likewise we recognise the many shortcomings of this inherently uncontrolled approach, mainly the effect of any potential notoriety associated with Placebo Coin being the first instance of public real time research of cryptocurrency phenomenon. In an effort to limit this we have chosen to withhold identities and publish this working paper anonymously on bitcointalk.org., the standard forum for launching ICOs.
III. Placebo Coin ICO We issue our own cryptocurrency (Placebo Coin) in an Initial Coin Offering. Placebo Coin is based on Ethereum platform (ERC 20 token) and as such is compatible with major Ethereum wallets and exchanges. We explicitly state that Placebo Coin has no intrinsic value, and does not represent a share or anything of value. We also state our intention to apply for a listing on cryptocurrency exchanges after the ICO. This market setup raises possibility of Placebo Coin becoming valuable simply by a market participant's behavior based on their belief that Placebo Coin will rise in value – thus creating a self-fulfilling prophecy.
Placebo Coin is a ERC 20 compatible token. Placebo Coin Tokens do not represent or confer any ownership right or stake, share, security, or equivalent rights, or any right to receive future revenue shares, or intellectual property rights. ICO is not open to United States and Hong Kong persons. By purchasing Tokens, you acknowledge and agree that there are risks associated with purchasing Tokens and owning Tokens. YOU ACKNOWLEDGE AND AGREE THAT THERE ARE RISKS ASSOCIATED WITH PURCHASING TOKENS AND OWNING TOKENS.
References
Allison, Graham. Destined for War: Can America and China Escape Thucydides's Trap?. Houghton Mifflin Harcourt, 2017.
Rosenthal, R., & Jacobson, L. (1968). Pygmalion in the classroom: Teacher expectation and pupils' intellectual development. New York: Holt, Rinehart & Winston
https://medium.com/@wmougayar/has-ico-cryptocapital-exceeded-early-stage-venture-capital-funding-yes-b0500d5fbe8https://www.bloomberg.com/news/articles/2017-07-13/initial-coin-offerings-seen-topping-early-stage-venture-fundinghttps://www.theguardian.com/business/live/2015/jun/28/greek-crisis-ecb-emergency-liquidity-referendum-bailout-livehttps://icowatchlist.com/blog/ico-market-research-leading-blockchain-platforms-2017/
