Investing in the crypto-asset environment: the effects of risk disclosures and the fear of missing out

Abstract

Purpose The psychology literature describes several methods of mitigating the effects of Fear of Missing Out (FoMO) in a social setting. However, the management literature lacks an empirically validated method of attenuating the effects of FoMO in an investing setting. Given that FoMO exposes investors to significant risks in volatile markets, this study aims to understand whether risk disclosures are an effective method of attenuating the effects of investment-related FoMO (I-FoMO) in the crypto-asset environment. Design/methodology/approach In an experimental setting, retail investors (n = 412) evaluate the share price of a publicly traded crypto-asset exchange. Investors are randomly assigned to one of two conditions: no risk disclosure or risk disclosure. This paper also measures investors’ level of I-FoMO. Findings Investors with higher levels of I-FoMO exhibit a higher propensity to invest in the crypto-asset market. Furthermore, exposure to a risk disclosure decreases investors’ propensity to invest in the crypto-asset environment with the effect being more pronounced for investors with higher levels of I-FoMO. The results show that risk disclosures decrease investors’ propensity to invest in the crypto-asset market by heightening their risk perception. Research limitations/implications This paper employs a one-shot experiment where we expose retail investors to a single risk disclosure. Although the manipulation of risk disclosure attenuates the effects of I-FoMO in the short term, future research should explore how long the effect of this manipulation will last. Practical implications Given that exposure to risk disclosures increases investors’ risk perception, investors should collect all relevant information prior to making investment decisions. Originality/value This study is among the first to show an empirically validated method of attenuating the effects of FoMO in an investing setting.

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