It feels like a daily occurrence that someone gets rug pulled investing in a silly meme coin. More often than not, the investor laughs it off and moves onto the next Pump.fun token. It makes you question, though: Do crypto degens even care about being scammed?
Logically, people don’t invest money if they think they’re going to lose money on a meme coin—no matter how degenerate you are. But, once it becomes apparent that the project is a scam, and the rug has been pulled from beneath them, the investor needs a way to deal with the experience.
“When there's a conflict between your beliefs and what happens we often will sort of change our understanding of our beliefs,” Christopher Chabris, ex-Harvard psychology lecturer and co-author of a book about scams, Nobody’s Fool, told Decrypt. “We can't change what happened, but we can change our view of our beliefs.”
In turn, some victims will reframe the incident in a positive light—this could be in the form of laughing. “You could call that coping or a defense mechanism or rationalization or whatever,” Chabris said.
“There’s many ways you could reframe [a rug pull]. You could reframe it as sort of a rite of passage,” Chabris told Decrypt. He explained an investor might frame losing money on a project as: “You have to learn for yourself and part of that is making decisions and losing—great investors have lost money.”
But in some scenarios, an investor may completely reject the reality of their prior beliefs. Chabris explained that some people have even changed their belief about who they voted for in past elections based on how popular the candidate was in the future.
He said that rationale tends to follow this script: “It's hard to come to the conclusion that I invested in that: Oh I must be an idiot.”
Daniel Simons, professor of psychology at University of Illinois and co-author of Nobody’s Fool, told Decrypt, “It's much easier to say, ‘oh yeah, I knew that it would probably fail,’ right? And laughing it off is an easier way to go. “
In our latest episode of ‘What’s the Meta?’ Ryan S. Gladwin and Reza Jafery debated if crypto degens really care about getting scammed and explore financial nihilism as the root cause of the phenomena.
In many ways, there will be red flags waved in the face of an investor as they throw money at a scam. But they still fall for it. According to our psychology experts, this is due to a phenomenon called truth bias.
“Truth bias is simply the sort of default inclination to believe that information being presented to you is true,” Chabris explained. “It's not stupidity, or anything like that. It's just sort of part of how the mind works in order to enable us to function as social organisms.”
Of course, there are many different ways to be scammed in the world of crypto. Romance scams are one of the most insidious out there. They involve the social engineering of individuals to build online relationships—often romantic in nature—before the victim is tricked into giving the scammer access to their funds. Sometimes this involves crypto and the scammers use the victim’s lack of knowledge in the space as a way to exploit them.
“There's another factor, which is that people often think they have more expertise than they actually do,” Simons explained. “Most people who are investing in crypto, if you ask them how blockchain works, they probably can't tell you.”
This is more relevant in the world of meme coins than anywhere else.
Quickly browsing meme coin factory Pump.fun presents users with tons of tokens that don’t shy away from branding themselves as rug pulls. There’s a full page of tokens claiming that they will rug pull if you buy the token. But people still buy it, thinking the coin they’re buying might become the next Dogecoin (DOGE) or Dogwifhat (WIF).
“[In this case] it’s kind of gambling, trying to time the market, trying to game it,” Simons said. “When they know that it actually has no real real value to it. It's just trying to game what other people are going to do.”
In many ways, this explains why meme coin investors laugh when they’re rug pulled—they know the risky game they’re playing. These victims then take to Twitter to share their loss, maybe without realizing that this is an attempt to find some comfort in others.
“There's a lot of stigma attached to getting scammed,” Simons explained. “When somebody, who is a public figure, comes forward and says yeah, I fell for this—it allows [other people] to have sort of something in common, something shared with somebody who was willing to admit that.”
Edited by Stacy Elliott.