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Cognitive Bias in MTG Finance: Save Yourself from Your Mind

As humans — which I assume most of you are since you are reading this article — we are amazingly, epically, staggeringly awful at understanding ourselves. We assume that since we are ourselves, that we know ourselves. But there are piles and piles of research that suggest that this is untrue. We are often bad at explaining our own behavior, even worse at predicting our own behavior, and dismal at understanding our feelings. Part of the reason that we are so bad at understanding ourselves is cognitive bias.

Cognitive Bias is "a general term that is used to describe many observable effects in the human mind, some of which can lead to perceptual distortion, inaccurate judgment, or illogical interpretation." There are tons of different biases. Understanding how we think, especially the ways in which our thinking is faulty, is beneficial in pretty much all domains of life. But since I'm not teaching a psychology course, we are going to focus on four specific biases which have potential to affect our Magic related investments and speculation. It's important to know that these way of thinking are generally not conscious (unless we really put in some effort to recognize and change our thinking patterns) and usually happen automatically.

Confirmation Bias

Confirmation bias refers to our tendency to seek our information that support are feelings and intuitions and avoid information that challenges our beliefs. The confirmation bias explains why conservatives tend to watch Fox News while liberals generally avoid the channel and why liberals tend to read Mother Earth News, but most conservatives wouldn't be caught dead on the site. By avoiding information that conflicts with our feelings, we avoid the potential for cognitive dissonance.

Now, let's say I watched GP Madrid last weekend and just fell in love with the Through the Breach deck. I start digging into the data and find a slightly above average spread of 25% and immediately start clicking the buy button. The spread has confirmed my already held position that Through the Breach is a good buy.

Usually, when I'm thinking about buying in on a card, I do a lot more than check the spread. I check how many copies are available, which (if any) vendors are sold out, I look over the price history, and think about seasonal influences and upcoming events. If I had sought out this potentially disconfirming information, I would have found that there are about a million copies on TCG, no one is sold out, and there really are not any big modern events coming up before the PT in February. Thankfully, this is just an example, and I do not have a pile of Through the Breach cluttering up my shelf.

Moral of the Story: The MTG finance world is not a place to "think with your gut." Research your buys thoroughly, and don't be afraid of the dissonance caused by being wrong. Just because your intuition was bad on Through the Breach does not mean you are a bad financier or person. Be open-minded, and embrace your wrongness when it happens.

The Endowment Effect (Divestiture Aversion)

The endowment effect refers to our tendency to value things more simply because we own them. While there are several theories on why we do this, it's obviously illogical. (Although I have to admit that it would be nice if my Underground Seas were worth twice as much as yours.)

I've written before about buying collections from people on Craigslist, and I have had several experiences with sellers who seemed to be suffering from this bias. Now, I should be clear, simply being uneducated about the prices of cards is one thing. I've definitely dealt with old-timers who have been out of the game for years and are still using their memory of Scrye prices as their baseline (which leads to expensive Serra Angels and cheap dual lands). What I'm talking about is the seller who seems to think that their bulk is worth $20 per thousand simply because it was their bulk. This also comes up in trade, when one trade partner insists on a "sentimental value" tax to let go of their cards.

A couple years ago I was buying a collection from a local player of Craigslist. He was moving away for college and wanted some fast cash. He sent me a list of the cards, I sent him an offer, and everything seemed to be all set. By the time I drove to his house, however, something went wrong.

It seemed that he forgot to mention that his copy of Linvala, Keeper of Silence had been signed. While I would rather have an unsigned card, I told him it was no big deal. That's when he told me a 10 minute story about the event he had gotten it signed at, the deck he had played, the funny t-shirt he was wearing, and what he had for breakfast... pretty much everything.

When he finished rambling, he told me that he couldn't sell the Linvala, Keeper of Silence for the agreed upon price. He felt that because it was signed, it should be worth almost double my offer. He continued by saying that he still really, really wanted to sell it, but he knew it was worth far more than a regular NM copy. It was clear that the card was far more valuable to him than it was to me, simply because he owned it, and it reminded him of a good time in his life.

Thankfully, the Linvala, Keeper of Silence didn't torpedo the entire deal, and I just ended up letting him keep it and deducting the price from the total price.

Moral of the Story: Don't put cards that you know you value more than anyone else in your trade binder. You risk antagonizing your trade partner, and losing more than you would by just leaving your Linvala, Keeper of Silence at home. Personally, I will trade any card I own if I can gain value from the transaction. The Jace, the Mind Sculptor from my first Worldwake pack isn't really any different than any other Jace, the Mind Sculptor out there.

The Gambler's Fallacy (Fallacy of the Maturity of Chances)

I find myself falling prey to this bias every once in a while, mostly while playing MTGO. Usually, it goes something like this: I join a draft, build what I think is the best deck in the pod, start game one and keep a five-lander. I proceed draw 8 more lands before scooping just before the point where I would throw my laptop against my fish tank. I submit my deck for game two and find another 5-lander starring back at me. I find myself thinking "There's no way that going to happen again. What are the odds?" Then I  proceed to draw 8 more lands while my fish start looking for a hiding place.

The gambler's fallacy is "the mistaken belief that if something happens more frequently than normal during some period, then it will happen less frequently in the future, or that if something happens less frequently than normal during some period, then it will happen more frequently in the future (presumably as a means of balancing nature)."

One way that this fallacy effect MTG finance is in the evaluation of (and speculation on) cards during the pre-release period. When a new spoiler is release, one of the first things we do is to look at similar past cards, and use these comparisons to try to predict which of the fresh spoilers are good investments. Look at these two comparisons:

A lot of people looked at Pain Seer and saw the next Dark Confidant. Along the same lines, many people looked at Sphinx's Revelation and saw the next Blue Sun's Zenith (perhaps the result of the mere exposure effect, which refers to the tendency to see things as similar, even when they are not, due to familiarity). They used their knowledge of these similar past cards to do a rough calculation of how much play the cards would see (Pain Seer high, Sphinx's Revelation low). In both cases, these bets were wrong. There are so many additional variable that go into the price of a magic card (compared to the number of variables in a coin flip), it's especially important to remember that past does not predict the future.

In a broader sense, I think that the gambler's fallacy has recently been impacting the financial community as a whole. I've seen quite a few un-evidenced statements on reddit and in the forums stating that the growth that Magic has been experiencing over the past 5 or so years cannot continue, simply because the game has been growing for a few years. Now, if you have some data or other evidence that suggests a decline in growth, I'm all ears. But the argument that "the market is going to decline, because it has been growing for so long" is not only illogical, but it provide a great example of the gambler's fallacy in action.

Moral of the Story: As a philosophy-major friend was arguing with me a few days ago, "Just because every time you threw a ball in the air it came back down, it does not mean that it will come down again the next time you throw it." Remember that the past does not predict the future completely. Your portfolio's consistent gains (or the 5-lands you opened) does not mean it will (or won't) happen again the next time.

Normalcy Bias

The normalcy bias "causes people to underestimate both the possibility of a disaster occurring and its possible effects [and] may result in situations where people fail to adequately prepare for a disaster."

In the world of MTG finance and speculation, the closest thing we have to a disaster is a reprinting. Over the past year, it has become abundantly clear that nothing (except the reserved list) is off limits. This is the new reality that we need to be prepared for. I found myself sitting on stacks of Caged Suns and Cathars' Crusades when Commander 2014 was spoiled I didn't see the disaster coming, or prepare myself. The sad thing is that I could have gotten out of these cards for a fine profit months ago. If I really wanted to keep some copies in my portfolio, I could have at least cashed out a large percentage and reduced my risk.

Moral of the Story: Be careful with long-term, non-reserved list holds. If Wurmcoil Engine can be printed in a commander deck, there are very few cards in modern that I would feel safe holding for years hoping for slow and steady gains.


There are a ton of other cognitive biases that can have an impact our on Magic play or investments. The Bandwagon Effect (Groupthink), Choice-Supportive Bias, Hindsight Bias, Hyperbolic Discounting, and the Optimism Bias are especially interesting and applicable. Let me know if you liked the article and found it beneficial, because there are more than enough biases for a Part Two.

As always leave your thoughts in the comments, or @SaffronOlive on twitter.

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