Fear of Missing Out: The Mechanics and the Cost

Fear of missing out is acting because others already have, before the reason for acting has been examined. The mechanism is not greed and it is not impatience. The trigger is other people's visible action, and the fear of being left out is a social cost rather than a financial one. The cost of arriving late is measurable.

Fear of missing out rests on separating two things that almost every reader has merged into one object. The felt half is about position among other people: they moved and somebody else did not, and everybody can see the line between the two groups. The measured half turns up later, in money, and carries no social content at all. Because the felt part is social and the measured part is financial, an argument made in money is aimed at a part of the mechanism that is not there. Reciting the arithmetic to somebody almost never helps. Changing the arrangement around that person usually does.

What is fear of missing out, mechanically rather than as a mood?

A mood offers nothing to take apart and a machine does. Treat fear of missing out as a machine with three parts rather than as a mood. The first part is the triggerThe thing that starts a response. Here it is other people's visible action, not any property of the thing being bought.: other people, plainly visible, have acted. The second part is the felt cost, the sense of standing on the wrong side of a line everybody can see. The third part is the response, acting before the reason for acting has been examined. Only one of the three parts can actually be changed, and it is not the one people aim at. Naming the three separately is what makes the mechanism workable.

The clearest case sits well away from money. A hall in a locality takes bookings for the wedding season. A family had not thought about a date at all until three cousins mention, inside one week, that each of them has booked. Nothing about the hall has moved. Same rooms, same rate card, same distance from the station, same caterer, same everything. Three visible people have acted and the family has not, and by that evening the family is looking at dates. The hall did not persuade them. The cousins did, and none of the three was trying to.

The same three parts sit under one line of the Palash decision log, an invented file of 240 logged decisions from 60 investors across eight quarters. On 19 February a television segment names Suvarna Chemicals Limited, and Meera Sundaram adds Rs 1,00,000/- to that position the same evening, taking its cost from Rs 3,00,000/- to Rs 4,00,000/- and the whole holding from Rs 12,00,000/- to Rs 13,00,000/-. Read the entry in three parts. The trigger is a segment that other people were plainly watching too. The felt cost is that everybody now knows this and Meera Sundaram has not moved. The response is an addition taken the same evening, with no written reason recorded against it.

Why is the trigger other people rather than the thing itself?

The trigger is other people rather than the holding, and the cleanest way to see it is to ask what would have to be true for the response to count as an ordinary change of view instead. An ordinary change of view needs new evidence about the thing: a statement that reads differently, a cost that has moved, a plan that has changed. The change could be said aloud, and somebody else could go and check it. Fear of missing out needs none of that, and the absence is the whole diagnostic. Nothing about the holding has to have moved at all. Other people moved, and nothing else did.

A street vendor two lanes away starts selling a second item and does well at it. Within a fortnight four more vendors on the same street are selling it. Some of the four looked at their own footfall, their own costs and their own mornings, and decided. Some of the four simply watched four boards go up. The action taken is the same action, so from the outside the two are identical. The only thing separating them is whether anything about the item was examined, and that is completely invisible from the pavement.

The Palash decision log leaves a footprint of the same shape. Of the 96 buys recorded across the eight quarters, 41 followed a media mention within three days. The share is 42.7 per cent of the buys, against 11.0 per cent of the eligible list being mentioned at all in a given week. A written reason was recorded on 84 of the 240 decisions, or 35.0 per cent. Within 48 hours of a news item, 71 of the 240 were taken, or 29.6 per cent. The two shares are an association and not a mechanism. The clustering of buying near attention shows up plainly. Which of the 41 examined the holding, and which only registered that other people had moved, does not.

Why is the fear social while the cost is financial?

Fear of missing out was first measured well outside finance. Przybylski and others, writing in Computers in Human Behavior in 2013, treated it as a general disposition and built a scale for it: an apprehension that other people are having rewarding experiences from which one is absent. Read that definition twice and notice there is no money anywhere in it. The object of the fear is a relation to other people. Money enters only afterwards, as the medium the response happens to be paid in. The same constructA thing a study defines carefully enough to measure, so that different researchers taking a reading get the same one. therefore turns up over a hall booking, a school admission and a holding, with nothing financial in common between the three.

The two halves also arrive at different times, and that is what makes them so easy to merge. The felt half arrives at once, in the minute the others become visible. The measured half arrives later, when the level has moved and the arithmetic can finally be done. By the time the cost exists the feeling has long since been discharged, and at the moment the feeling exists there is no cost yet to point at. Anybody arguing another person out of it is therefore always describing an object that has not turned up.

There is a useful test buried in this. The question is what the person would still feel if the money were taken out of the situation entirely. If four neighbours have booked a hall and a fifth has not, and the booking happens to cost nothing at all, most people still feel something. The residue is the social half, and it is the half every arrangement set out below is aimed at. Whatever is left once the residue is subtracted is the financial half, and that half answers to arithmetic perfectly well.

What does arriving late in the queue actually cost?

Now measure the queue rather than describing it. The invented Palash 100 indexA single number standing for the level of a whole group of holdings, so that a move can be described without naming any one of them. opens at 100.0 and reaches its peak of 131.0 at the end of the second quarter. Take the sixty investors in the Palash decision log and suppose they acted one after another: the first at the opening level of 100.0, the sixtieth at the peak of 131.0, and the fifty-eight in between spread evenly across the rise. The ordering is an assumption and was never observed: the Palash decision log records no sequence of entries at all. The arithmetic below therefore gives the shape of a queue cost, not a statement about what these sixty people actually did.

Spread evenly means each queue positionHow far into a sequence of actors somebody stands. First means nobody moved earlier; sixtieth means fifty-nine did. adds 31.0 divided by 59. The step is about 0.525 points. The divisor is 59 and not 60 because what is being counted is the gaps between people rather than the people themselves: sixty investors have fifty-nine gaps between them, exactly as sixty fence posts have fifty-nine panels. Multiplying that step by the number of people who moved earlier gives the queue costWhat arriving later in a sequence costs compared with arriving first, measured here in points of the index rather than in rupees., the difference between the level paid and the level the first actor paid.

Work the four sampled positions through and the pattern is immediately visible. The fifteenth acts at 107.4 and pays 7.4 points more than the first. The thirtieth acts at 115.2, a cost of 15.2 points. The forty-fifth acts at 123.1, a cost of 23.1. The sixtieth acts at 131.0 and carries the whole rise of 31.0 points. The cost of lateness is linear in position. The thirtieth of sixty therefore pays 49.2 per cent of the entire move rather than some small fraction of it. Most readers expect being late to start mattering only near the end, and 49.2 per cent is the number they get wrong.

Two things in that table are worth sitting with. The first is that nobody in the queue did anything unusual: every one of the sixty took the same action, and the only difference between them is how many people had already taken it. The second is that the last actor carries the entire rise on their own. The cost was accumulating at 0.525 points a head from the second person onwards, so there is no position at which it suddenly appears. A cost that arrives evenly is far harder to notice than a cost that arrives all at once. Drawing the queue is what makes the even one visible.

Before the control below is touched, an answer is worth settling on. Most readers carry a strong intuition about where a queue cost sits, and the intuition is that being second or third costs almost nothing while being near the end costs nearly everything. The arithmetic above says otherwise, and watching the shape move is a better correction than reading the sentence again.

How does FOMO vs Performance Chasing separate two different decisions?

The two get merged constantly, and the merge hides the useful distinction. Define the second one properly before setting it beside the first. Performance chasingMoving towards whatever has done well recently, because it has done well recently. is moving towards whatever has done well lately on the ground that it has done well lately. Sirri and Tufano, writing in the Journal of Finance in 1998, measured its shape: money flows towards recent winners far more strongly than it flows away from recent losers, so the reaction to a ranking is lopsided rather than symmetrical. The trigger there is a published record. Somebody opens a table of last year's numbers, reads down to the top line, and moves towards it.

Placed side by side, the two separate cleanly. Fear of missing out is triggered by other people acting where they can be seen, and it answers the question should I move at all. Performance chasing is triggered by a ranking, and it answers a different question: which one of these should I pick. One acts on whether, the other acts on which, and that single difference is why the two need different corrections. Somebody in the grip of fear of missing out has not yet reached the question a table would help with. A better ranking, a longer measurement window or a fairer comparison table is therefore a real answer to performance chasing and no answer at all to fear of missing out.

The two also travel together comfortably. Travelling together is why they are so easy to confuse. Three colleagues mention over lunch that they have moved into something. The first mechanism is doing its work on whether. The same evening the person opens a ranking to decide where to move. The second mechanism is doing its work on which. Both happened, in that order, inside one afternoon. The ranking is the part with a document behind it, so the written reason that eventually gets recorded will describe the ranking.

Why does it act on whether to act at all rather than on which thing to pick?

Almost every decision about money has two stages inside it, and people notice only the second. The first stage settles whether to move at all, right now. The second stage settles which thing to move into. The second stage is the one with a document behind it: a comparison, a table, a conversation with somebody, a reason that could be written down and shown to another person. Fear of missing out lands entirely on the first stage, and the first stage is almost never written down or defended to anybody.

An undocumented first stage is what makes the whole mechanism so hard to catch in a person's own decisions. A person who has moved because three colleagues moved will then compare four options carefully, pick the one that compares best, and record a perfectly respectable reason for the pick. Every word of that reason is true. Not one word of it says why anything was being bought that week at all. The timing was settled before the comparing started, and settled by something with no document behind it.

The Palash decision log shows the same asymmetry in its own paperwork. A written reason was recorded on 84 of the 240 decisions, or 35.0 per cent, and the reasons that were recorded describe the choice rather than the timing. Of the 96 buys, 41 followed a media mention within three days, or 42.7 per cent, and the reason column against those entries explains which holding without explaining why that week. A reason that answers which is not evidence that whether was ever examined.

Which arrangements actually reduce it?

Everything that works is a structural correctionA change to the arrangement a decision is taken inside, rather than a change to how somebody feels about it.: a change to the arrangement rather than to the feeling. There are three worth naming and they share one property. A standing instructionAn arrangement that acts on a date on its own, with no fresh decision taken at the time. acts on a date and removes the moment of choice altogether. A written rule about when a decision may be taken at all removes the occasion without arguing about it. A pause of a stated length between noticing and acting leaves the feeling completely intact and simply denies it a moment to act in. None of the three argues with the feeling, and that is precisely why they work.

The household version is familiar enough. Meera Sundaram has Rs 25,000/- going in every month by standing instruction. On the day the level moves and three colleagues mention that they have added, the standing instruction does not consult her, does not have an opinion about the level, and does not know that anybody else exists. The decision was taken once, on a calm afternoon, and every subsequent month is an administrative event rather than a decision. Nothing about the arrangement is clever. The standing instruction simply removes the occasion on which a feeling could be converted into an instruction.

The Palash cohort gives the written rule a measurement, though a narrow one. Twenty of the sixty investors adopted a written checklist on 4 November. Across quarters five to eight those twenty recorded a written reason on 34 of their 41 decisions, or 82.9 per cent, against 19 of 63, or 30.2 per cent, for the other forty. Their ratio of realising gains against realising losses fell from 3.2 to 1.6. No claim is made here that any of this produced a better return, and none is measured. Eight quarters and sixty invented people could not support such a claim, and a reader who takes one from these numbers has taken something the numbers do not contain.

Which arrangements only appear to reduce it?

The corrections that fail are the popular ones, and they fail for a single reason. Being told what arriving late costs is a fact about money. Being told to be patient is an instruction about temperament. Resolving to be less affected next time is a promise made to oneself about a feeling nobody chose to have. Each of the three is aimed at the felt half of the mechanism, and the felt half is the one part of it that does not answer to argument. Reading about the mechanism belongs on the same list.

When is acting because others acted the correct response?

Sometimes, and this deserves to be said without hedging. Treating every copied decision as an error teaches something false. Two conditions have to hold together. The first is that the acting of those other people is genuine information the observer does not have: they know something about the situation that would be worth knowing. The second is that waiting long enough to find out first-hand would cost more than simply being wrong would. Where both hold, following is a use of evidence rather than a response to a feeling.

Four households on the same street start boiling drinking water this week and nobody says why. Following them costs a little gas and twenty minutes. Establishing the reason independently might take two days. Both conditions hold comfortably, and copying is the correct move, not a lapse of any kind. Change one thing, though. If the four households are boiling water because the first one did and the other three copied, then there is no information in the chain at all, and following adds a fifth household to a sequence in which nobody ever knew anything. Whether copying is sound depends entirely on where the chain started, and where a chain starts is set out under herding.

So the error is never the following. The feeling arrives with exactly the same urgency in both situations. The error is acting on it before asking which of the two is the one at hand. The question worth having ready is not whether to follow but whether these people know something. The question takes about ten seconds to ask, it can be asked out loud, and asking it is the entire difference between a decision and a reaction.

How does an adviser, or somebody deciding alone, put this to work?

Devika Rao, the adviser at the invented Palash Advisory Services Private Limited, has watched argument fail, so she does not argue anybody out of the feeling. Devika Rao changes the calendar instead. A decision prompted by other people is not refused and not debated; it is dated. The instruction is written down with a date on which it may be taken, and the date is far enough away that the moment has passed by the time it arrives. Roughly half the instructions written that way are never taken, and the other half are taken by somebody who has had a week to think. Nothing in that method involves being persuasive. Needing no persuasion is exactly why it survives contact with a real person.

For somebody deciding alone, with no adviser and no committee, the same method fits on one line of paper: the date on which the decision may be taken is written down, and the application is then closed. The rule asks nothing of temperament: feeling calm is not required, only looking at a date. A rule is therefore easier to keep than a resolution. A rule written in the middle of the feeling will always be written to let the feeling through, so the rule is best designed on a quiet afternoon.

For a professional deciding on behalf of others the same structure scales, and there is an extra reason to want it. The Palash turnoverHow much of a holding is bought and sold over a year, expressed against the size of the holding. quintiles put twelve investors in each band, running from 9 to 210 per cent a year. Gross returns across the five sit inside 0.3 points of one another, at 11.2, 11.0, 11.1, 10.9 and 11.0 per cent. Net returns run 4.0 points apart, at 10.9, 10.4, 9.6, 8.4 and 6.9 per cent. The spread came from the dealing and not from the picking. An arrangement that reduces unplanned activity is therefore worth having quite apart from any mechanism it corrects.

Meera Sundaram, Devika Rao, Palash Advisory Services Private Limited, the Palash decision log, the Palash 100 index and Suvarna Chemicals Limited are invented.
Educational material. Not advice on any investment, tax, budget or market position.