Foment FOMO & Fear for Crypto Crazy

What persuades people to invest in cryptocurrencies, given the level of financial risk with even the most stable alternatives? In describing the popularity of cryptos, researchers at Universitat Ramon Llull note that financially vulnerable minorities are overrepresented among the range of investors. Therefore, perhaps the appeal is related to that of lotteries: The poor are drawn to dreams of cashing in big while ignoring the odds of crashing down big.
     Those researchers then go on to explore the power of FOMO. People’s caution about cryptos is dissolved by a fear of missing out on the astounding financial gains they believe others are achieving. For one of the studies, the researchers used as participants people who had recently invested in cryptos. The participants were asked to pretend they were considering another crypto investment. Some then read, “Other users, traders, and investors have posted comments and videos on this social media platform about the release of this crypto. They have commended the hype about this new crypto and how profitable it might be. So, you think you are missing out if you do not invest.” The others read, instead, “Other users, traders and investors have not mentioned anything about this crypto and have not shown any interest on this social media platform. So, you are not sure about the hype of this crypto and its profitability. You do not think you are missing out on anything if you finally decide not to invest.”
     As the researchers predicted, the fear of missing out resulted in higher agreement with, “It’s very likely that I will invest in this new crypto.” Additional studies in the set supported the conclusion that FOMO precipitated the investment interest and that this worked even when the investor had experienced prior losses. The implication is that sales of highly risky instruments can be increased with use of a FOMO appeal.
     However, consumer advocates and ethical financial advisors will want to curb financially vulnerable consumers’ attraction to crypto. The researchers found evidence that a fear message can counteract the FOMO effect. The text used in the study was, “9 out of 10 investors suffer severe losses when investing in crypto.”
     A separate project found the driving force of FOMO toward cryptocurrency investing is more likely in people who show high interpersonal agreeableness and low self-confidence. When a financial advisor identifies these characteristics in a consumer, delivering fear messages is especially influential.

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