Possibility Effect

In 2008, one man declared that the world had a 50% chance of ending.

Nope - it wasn’t a doomsday cultist. It was a nuclear safety officer turned lawyer: Walter L. Wagner.

Undoubtedly a very smart man. But he infamously made one of the dumbest comments in television history.

Here’s what happened:

Back then, CERN was about to flip the switch on the Large Hadron Collider (that science thing that smashes particles together). Wagner argued there was a tiny risk it could create a black hole which would destroy the world.

He even appeared on The Daily Show with John Oliver to talk about it.

When Oliver asked him what the chances were that the Hadron Collider would end the world, Wagner said it was 50/50. His reasoning for such high odds? “It’s either going to happen or it’s not going to happen.”

Laughable logic, eh? Wagner had priced a microscopic probability as a coin flip.

But the thing is, this thinking actually highlights a common flaw in a lot of trading strategies.

And it can be surprisingly expensive…

It’s easy to ignore things that are impossible - they don’t factor into our decision-making.

But as soon as something crosses the line from impossible, to possible, that’s when the trouble starts.

Because we tend to treat very low-probability outcomes as being far more likely to happen than the maths suggests…

Shark attacks. Lotto wins. Plane crashes. All near-impossibilities statistically. But they take up a huge amount of mindshare.

That’s what happened to Wagner in 2008. The microscopic risk of a black hole became a 50/50 chance in his mind.

Same thing happens in investing and trading.

The Possibility Effect nudges us into long-shot trades - microcaps, cheap options, Memecoins. We tend to overestimate the chances of success.

Seems harmless to ringfence some funds for moonshots like this? Maybe. But maybe not. Over time, it can turn into death by a thousand cuts. Capital gets siphoned from your main trading strategy, dulling the effects of compounding.

The Effect can also show up when we’re being risk-averse (which isn’t often here at Market PSYOPs). We tend to overpay to hedge tail risks that are extremely unlikely.

But enough theory - it’s time to trade.

Getting Defensive 🛡️

I don’t know if anyone’s read the news lately, but it’s not looking great out there. And the President of the Free World just threatened an entire civilisation (via Truth Social obviously - diplomacy at its finest).

In times like these, even if short term ceasefires are agreed, we like to get defensive.

iShares Gold Trust (NYSEARCA: IAU):

I know, I know - gold’s had a historic run. But it’s also had a pretty violent pullback. And it’s proven for now that it’s still the default risk-off asset. With the safe haven status of treasuries and the dollar under scrutiny due to macro events, policy chaos, and Fed-independence concerns, the move to the upside for gold might not be over.

It won’t 5x, but in this macro set up, it could still be poised to do well.

Sure it’s all just one big currency debasement trade anyway, right?

To the Moon 🚀

On the other hand, if you want to disregard everything we’ve talked about and swing for the fences, then microcap biotechs could be for you my friend!

Here’s what I’m punting:

Cingulate Inc. (NASDAQ: CING):

Clinical stage biotech company that develops ADHD medication. CING is awaiting FDA decision on its lead product CTx-1301 (yep - we’re really doing the Dumb and Dumber meme from above!) and a decision is set for 31 May 2026.

With a market cap of $70M, could this be a multi-bagger? Sure. But there’s also FDA risk, delay risk, financing issues, dilution concerns…

In other words, this could also be peak Possibility Effect.

There’s psychological traps everywhere in life. They shape how we think, how we make decisions, and spend money.

But that’s enough over-intellectualising. Let’s gamify this:

💲💲You’ve got €10k to spare (good for you).

Let’s say, in some parallel universe, Michael Burry just launched a SPAC - pre-deal, hunting for something in the fashion industry.

The answer - and the psychology behind it - will be revealed in the next edition.

Last Week’s Answer:

If you found yourself drawn to the risky biotech in last week’s poll, the Possibility Effect might have been involved. But hey, no judgement here - the Market PSYOPs team loves a long shot. As long as we remember that a ‘non-zero chance’ doesn’t mean 50/50…