By Boyan Ivanchev, PhD
Each and everyone of us has been forced to make a decision many times, pushed to search for the best option out of a wide range of alternatives. How to pick up the best ice-cream from the huge freezer at the supermarket, for instance, while at least a dozen of brands and more than 30 different flavours are fighting for your attention. Or to choose a second-hand car on the biggest European website with database of at least 1,3 mln. vehicles.
It’s called the FoBO effect, the Fear of a Better Option. Patrick McGinnis, the founder of FoBO, states that we are often paralysed by the fear of not choosing the best option. The effect grows dramatically upon the deep penetration of internet in our everyday life, in particular, where gadgets and devices keep us company even in bed. Infinite information is pouring out, filling every gap with details about goods, services, entertainment, and endless possibilities to spend money, health, time or life.
The number of decisions that a single human being makes daily is calculated to be between 6,000 and 20,000, according to several scientific sources and experiments. In an overchoice situation, the necessary cognitive effort of the person who is forced to make a decision increases to the point of cognitive overload, inhibition and high stress levels. Therefore, the decision fatigue phenomenon appears on stage. Too many options to choose from and the decision fatigue before too many rational choices may lead to unhealthy behaviours and choices, such as last minute decisions, postponing each decision, evasion or even refusal to decide.
The FoBO effect, particularly if jointly with FOMO syndrome (Fear of Missing Out), may bring to the fear of making certain decisions FoDA (Fear of Doing Anything), or even to a cognitive paralysis which might turn out to be lethal. Hence, choice or decision in stochastic environment is not simple. On the contrary, it requires a thinking process and -according to Daniel Kahneman- a thorough consideration, not a superficial thinking. FoBO effect is boosted by the pervasive attachment to social media and the constantly growing amount of information that attacks the human brain and shows abundant options and decision alternatives for every occasion. As a result, waiting and postponing the decision for the sake of choosing the best option out of the continuously growing range of opportunities, also increase.
FoBO effect appears as anxiety and the fear of missing the best choice when many opportunities are available. Therefore, choices or actions might be postponed or even blocked, or we might make decision on irrational grounds. Errors might occur, if we are not good enough at self-control, if we leave the decision for the last moment, or if we give in to emotions or to the strong influence of cognitive psychological inclinations.
FoBO effect and the wrong behaviour that it originates may provoke delay or refusal to make extremely important life decisions. An example for the this malignant consequence is the prolonged collection of information from different -often non-specialised- sources, such as the internet, family or frineds, on topics like the best antibiotic to treat a bacterial infection. But meanwhile the infection is spreading and the delay may turn out to be lethal.
On financial markets, the situation is pretty similar. As of the end of the first quarter of 2023, there were more than 63 thousand mutual funds, regulated by the respective national financial bodies, which offer money management for the following segments of financial markets: shares, bonds, cash markets, raw materials, real estate, balanced, hybrid, guaranteed, etc. The list doesn’t even include fund types like “fund of funds” or hedge funds. The number of investment funds is huge and consists of many separated financial instruments which operate in different countries and on different continents.
More than 58 thousand are only the shares traded publicly on stock exchanges around the world, but tens of thousands of bonds are to be added – state, municipal, or private; convertible into shares, or not; with different synthetic instruments engineered on them; and many other derivative financial instruments. The varied types of financial instruments reveal the number of possible compositions and investment approaches that mutual funds can apply for managing money of individual and/or institutional investors.
Often, when it comes to non-professional investors, this situation activates the FoBO effect. As a result, they are unable to choose a fund or financial instrument to invest their personal or family savings. These investors search non-stop for more and better information about the funds to invest in, and many times the choice comes as a result of decision fatigue. Such a choice is irrational, wrong and influenced by emotional and cognitive psychological inclinations. Hence, investors spare many years not receiving the usual income from the financial instrument and portfolio they opted for, and the amount of their money doesn’t grow – even worse, it decreases because of inflation which reduces the value of non-invested money.
In many cases, the huge variety of investment opportunities, easily accessed through online investment platforms, activates the FoDA effect which paralyses the potential investors and convinces them not to invest on the capital market. This behaviour can be changed, for the own good of individual and family investors, by spreading the correct financial information and by improving the financial culture of the nation. According to a new Eurobarometer survey on the financial knowledge and the financial culture of EU countries, Bulgaria holds one of the last positions. Results are based on overall understanding of the following matters: the correlation risk-profitability of investments; how does inflation work; the mechanism of diversification of investments; the mechanisms of simple and compound interest; the correlation between interest rate increase and bonds price. Only 20% of the Bulgarians gave 4-5 correct answers to these questions, while 26% gave 0-1 correct answers.
One of the strategic goals of the Financial Supervision Commission (FSC) is to improve the confidence of the population in using financial products and services, by increasing the general level of knowledge and by providing higher protection to the users of such services. However, FSC’s efforts remain invisible, there are no specific quality achievements, and the Bulgarian society maintains very low levels of financial literacy. Furthermore, FSC kept deathly silence (no hearing, no understanding, no seeing, no interest). It remained paralysed by the influence of the FoDA phenomenon and did not even take part in the discussions regarding the suggested changes of the study plans for the public school, adopted by the Bulgarian Ministry of Education. The notion “simple interest” was brutally cut off the material to be studied in Maths in the fifth grade and was patched to the schedule for the seventh grade. Making a decision is not a simple process, nor is thinking. Emmanuel Kant has explained that not every stated opinion represents the result of thinking. Therefore, erasing “simple interest” from the study plan of the fifth-graders is not a mere change, it’s rather a crime against the finance culture of the Bulgarians youth. To make it clear, it’s FSC’s fault if young generations keep having low finance culture and low income, instead of raising their financial culture, and - consequently - their income.
