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Fear of missing out and market stability: A networked minority game approach

Author

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  • Park, Daehyeon
  • Ryu, Doojin
  • Webb, Robert I.

Abstract

This study examines the influence of the fear of missing out (FOMO), which spreads through social networks, on financial market stability. We extend the networked evolutionary minority game model, a widely used methodology in econophysics, by incorporating the asymmetric reward structure and investors’ FOMO. The agent-based simulation results reveal that the asymmetric reward structure significantly improves the stability of the system. In contrast, the FOMO significantly reduces market stability. FOMO-induced irrational behavior disrupts the market’s normal functioning, leading to decreased stability. However, as agents become more interconnected and actively adapt their strategies, the adverse effects of FOMO on the system diminish.

Suggested Citation

  • Park, Daehyeon & Ryu, Doojin & Webb, Robert I., 2024. "Fear of missing out and market stability: A networked minority game approach," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 634(C).
    • Handle: RePEc:eee:phsmap:v:634:y:2024:i:c:s0378437123009755
    DOI: 10.1016/j.physa.2023.129420
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    Keywords

    Agent-based simulation; Econophysics; Fear of missing out (FOMO); Market stability; Networked evolutionary minority game;
    All these keywords.

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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