Dan Ariely, a professor of psychology and behavioral economics at Duke University and author of several books, talks about how to deal with irrational behavior. The topic is the recently known “fear of missing out” (or, as experts call F.O.M.O. syndrome).
Here’s how Ariely defines it:
“FOMO is generally something of a pity. So let’s think a little about what regret is. It has to do with the fact that when we evaluate our happiness, we not only evaluate where we are, but also where we could be. “
So, this special kind of fear is a consequence of the attitude of our brain to constantly engage in the comparison between the current and hypothetical result and to decide which of the two alternatives is better.
He goes on to say that the concept of F.O.M.O. it also includes something like ‘expected regret’, which is an attempt by a person to avoid regret in the future. This is used, for example, by retailers who try to encourage us to visualize our future regrets and force us to buy certain products or services in advance.
Please note that F.O.M.O. it is not like envy, where you usually focus on others (your competitors or enemies), but it is strongly related to the past or our potential missing actions.
This attitude has always been part of our emotional life, but today it is much more common and relevant due to the effect of social media on our psyche. Most of us check our social media accounts several times a day, where at any given time there is someone who has achieved something amazing or just done something good that they are currently sharing. Usually we do not just look at our friends, but find out about the professional and personal lives of many famous and successful people.
So every day we may have the impression that we are “wasting” time or opportunities while the rest of the world is doing something important and thriving. Of course, this is not the case, but this is the message that constantly affects our mind.
How F.O.M.O can affect our investment process
A person affected by F.O.M.O. is obsessed with “if only” kind of thoughts. If we report this attitude towards investing, the person in question might think, “If only I had bought this stock” or “if only I had not sold this stock.” But we didn’t, and there was probably a good reason for that, but now we’re so disappointed that we’re only looking at its downside.
After all, there is one specific emotion that can lead to this kind of situation: greed. In fact, people who constantly think “if only” are usually not happy with what they have achieved.
How to protect yourself
Even if we have worked hard to define our stable investment process, we are still human. No one can say he is completely insensitive to the pressure of F.O.M.O. or other negative influences.
What can we do then to protect ourselves and our portfolio from such bad attitudes? Ariely makes it clear that we can’t do much about it, because these kinds of emotions are really powerful. The only thing we can actually do is try to isolate ourselves from a huge flow of distracting information. For example, we can set some rules that will restrict our access to social media or any kind of incentive producing F.O.M.O.
We can’t change the way our brains work, but we can apply some countermeasures to avoid the constant attachment to the ever-increasing noise.
This will help us to act more rationally when we have to make a decision quickly, either because of a corporate deal or because the price has reached a level where we believe it meets our safety requirements. The best investors can explore their potential investments for many years before deciding to become aggressive and pull the trigger.
“Fear of missing out” is a psychological anxiety caused by our tendency to feel sorry for people. Investors often experience this kind of bad emotion, especially when the bull market reaches the bubble territory.
Nowadays F.O.M.O. it is becoming more frequent and relevant due to the negative effect of social media. Unfortunately, we cannot remove this aspect from our minds, but we can try to protect ourselves by isolating ourselves from the constant flow of (often useless) information to which we are constantly exposed.
Creating rules to limit and control, focusing on really relevant information and preparing ahead of time can lead to more rational behavior and consequently a higher return on investment (and a less stressful life).