Summary: Focusing on rarity can be self-defeating when it comes to collecting NFTs, the researchers say. To maintain value, the study recommends that designers make sure people don’t see the rarest items in any given category.
Source: Stevens Institute of Technology
Non-tradable tokens (NFTs) are in vogue, as collectors spend huge sums (in some cases, tens of millions of dollars) to own and trade unique digital images. For researchers, this provides a rare opportunity to examine the way people learn about new marketplaces and assign value to different asset categories.
“Because NFT trade records are public, it offers a remarkable chance for us to see why people perceive collectibles as valuable and how these perceptions change over time,” said Jordan Suchow, a cognitive scientist at the Stevens Institute who led the research. technology.
Suchow’s team performed the first cognitive study of NFT trading, looking at an NFT collection known as the “Bored Ape Yacht Club” – a set of 10,000 computer-generated cartoon monkeys, each with different characteristics such as color, clothing, and accessories. It has become extremely popular in recent months.
Each Bored Ape is unique and therefore equally rare, but some features are more common than others. A monkey wearing a straight-line sweater may be more common and therefore potentially less valuable, for example, than a monkey in a suit and tie or with earrings.
“It’s a bit like stamp collecting: Stamps printed in the same series all look the same, so if there’s a misprint or some other rare feature that makes a stamp stand out, people will pay a lot more for it,” Suchow explains. Co-authored with Stevens PhD student Vahid Ashrafimoghari, the study will be presented at the Cognitive Science Association Conference July 27-30 in Toronto, Canada.
When humans first started trading Bored Ape NFTs, monkeys with rare traits quickly became more sought after. But this distorted the information landscape: As rare apes became more valuable and more widely discussed, they also became much more visible.
“Today, someone new to the Bored Ape trade sees these rare monkeys everywhere and perceives them as much more common than they really are,” Suchow said.
“This creates a conundrum: How can people be expected to learn a new category when their experience with that category is dominated by the rarest examples?”
Suchow explains that if a person wants to find out what a dog is, they can do this by going to a dog park and looking at a number of common animals. On the other hand, going to an experimental breeder and only looking at rare breeds will skew their perception of the category and how valuable any given dog is.
To test their theory, Suchow’s team identified the rarest and most common features in Bored Ape NFTs and then matched their findings to the relative value of NFTs over time.
The results were striking: rarity was strongly associated with value in the early days of Bored Ape trading, but as newcomers started trading NFTs, the link disappeared almost entirely.
Suchow says the findings are a lesson for collectors of all kinds. “We’ve shown that focusing on rarity can be self-defeating – if you want to maintain value, you have to make sure people don’t see it. Only The rarest items in a given category,” he explained.
This could lead to a rethinking of how online marketplaces are designed, leading individual investors to assign less value to the rarities in new markets.
Some interesting questions remain: Stevens’ team found that some rare NFT features, such as unusually colored backgrounds, retain their value over time, while others, such as the color of a monkey’s fur, rapidly depreciate.
Suchow said it will require additional work to understand why some traits continue to correlate with value and others not, and how this plays out in other categories such as stamp collecting or art markets.
“The exciting thing here is that we’ve uncovered a general principle: Demand for rarity is self-defeating,” Suchow said. “This should be very broadly applicable, so the big question now is whether we can observe this effect in other categories of collectibles as well.”
About these NFTs and psychology research news
Author: Thania Benios
Source: Stevens Institute of Technology
Communication: Thania Benios – Stevens Institute of Technology
Picture: image public domain
Original research: The summary “The paradox of rare-learning categories: NFTs and a case study of The Bored Ape Yacht Club” by Jordan Suchow et al is available online. The findings will be presented at the Cognitive Science Association meeting.
The paradox of learning categories from rare examples: NFTs and The Bored Ape Yacht Club case study
Collectible items such as stamps, coins, paintings, and trading cards are often valued because of their rarity. A side effect of rarer items having a higher value is that they are traded, discussed, and displayed more often. A new collector’s category experience, defined by a set of collectible items, is therefore heavily biased towards rare items.
Category learning theories predict that these conditions create a uniquely challenging environment for learning a category because rarity-based sampling can reverse the distribution of associated feature frequencies.
Here we show that under these circumstances, the demand for rarity is self-defeating: when newcomers do not correct the sampling bias present in their experience, they will have a distorted understanding of the category and misunderstand which items are actually rare, causing Rarity to devalue over time.
We find evidence of this dynamic in the context of The Bored Ape Yacht Club (BAYC), a collection of 10,000 unparalleled tokens (NFTs), each with a set of characteristics that differ in rarity.
Consistent with our theory, we show that the influx of newcomers learning about BAYC over time correlates with a decline in demand for rare-featured tokens.