I’ve been experiencing a lot of FOMO this holiday season.
For those of you who aren’t up to date on the lingo, FOMO means Fear Of Missing Out.
It’s a powerful cocktail of cognitive biases.
First, you take a couple shots of social proof and place them in a large glass filled with ice.
Then, you add an equal amount of the finest “loss aversion” you have on hand and stir until the two are evenly mixed.
If you want, you can sprinkle a little bit of envy on top–but that’s not necessary. The cocktail is strong enough with just two ingredients.
All of us experience plenty of FOMO during the holiday seasons… after all, this is the time of the year when every single store on the planet runs “can’t miss” sales that “are ending in 24 hours”!
This is also the time of the year when families and friends gather together and tell each other about the awesome stuff that they did (and bought) that you (unfortunately) missed…
But this year there was something new in the mixture. Something powerful. Something exotic.
Can you guess what it was?
Let me give you a hint.
It starts with B.
Still can’t get it?
OK–here’s another hint: it’s nerdy.
No. I’m not talking about books.
I’m talking about…
Yes, that ever so sexy digital gold. That rocketship that keeps on moving up and up and up and breaking new price records.
That magical new money that has turned that one friend of yours on Facebook into an overnight investment guru: “Stocks are so 20th century, man…”
We all have someone like this in our orbit. And we’ve all seen the news stories about some 20 year old kid or another who now drives a Porsche because he bought a few hundred coins when they were still a few pennies each.
“If only I had purchased Bitcoin in 2010…”
I bet that the topic was brought up at least once during your holiday festivities.
In my case, it was mentioned at every single dinner I went to between the 20th and 26th.
I’m not going to lie, I had at least 3 fantasies about what my life would be like if I had purchased a couple thousand dollars of Bitcoin back in 2010.
And, yes, they did involve yachts and the occasional Rolex (and I’m not even a watch guy!).
Which brings us back to the topic at hand: FOMO.
There are few things better at changing behavior than FOMO.
It’s the driving force behind fads of all shapes and sizes.
Remember Beanie Babies? That whole fiasco was driven by FOMO.
The housing crisis? FOMO.
Bieber-mania? Yep–you guessed it. FOMO.
Savvy observers of human behavior can detect these manias in their early phases–and capitalize on them.
But most people aren’t astute observers of human psychology. They choose to run with the herd because it’s running–not because of any deeper understanding.
Which points us to another characteristic of social proof: it’s most impactful when we’re uncertain, and very few of us know that much about investing & financial instruments… and even fewer know much about cryptography, and all the other complicated stuff that Bitcoin is built upon…
Which makes it a perfect catalyst for herd behavior. People don’t understand Bitcoin because it’s complicated, so they defer to the judgement of others. The only problem is most of the “others” out there don’t understand it either.
People then buy it because other people are buying it, which causes the price to go up, which causes even more people to buy it because they don’t want to lose out on all the amazing gains people are making.
It’s a devilish loop, and it’s not the best way to invest one’s money.
Which reminds me… you know what’s a good use of money?
Investing in yourself. Investing in knowledge.
Which is why you should sign up for my premium behavioral science round-up.
Every 2 weeks I send out a list of the most interesting 15-20 behavioral-science studies that I’ve encountered. People love it. They learn a lot.
And the next issue is going out tonight.
Don’t miss out! Don’t experience FOMO (see what I did there?). Sign up here: https://behavioralsciencenewsletter.com/