The Determinants of Investement Decision: A behavioral finance approach with FOMO as a mediating variable

Abstract

This study examined the influence of loss aversion and herding behavior on investment decisions and investigated the mediating role of fear of missing out (FOMO) within a behavioral finance framework. Investment decisions among retail investors are increasingly influenced by psychological biases and social pressures, particularly in digital investment environments. The rapid growth of online investment platforms and social media has intensified exposure to information, creating new challenges for investors in evaluating opportunities and managing risks. Understanding the interaction between cognitive biases and emotional factors is therefore essential for explaining contemporary investment behavior. This research employed a quantitative explanatory approach using survey data collected from 156 active investors in Indonesia. The data were analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM) to examine both direct and indirect relationships among variables. The findings indicate that loss aversion and herding behavior significantly influence investment decisions, both directly and indirectly through FOMO. Furthermore, FOMO acts as a significant mediating variable, suggesting that emotional and social pressures intensify investors’ tendency to make rapid and potentially impulsive decisions. These results highlight the important role of cognitive and emotional factors in shaping investor behavior in emerging markets characterized by high exposure to digital information and social interaction. The findings suggest that investors are influenced not only by their perceptions of potential losses but also by the behavior and opinions of others in their social environment. This study provides practical insights for investors and financial institutions to better understand behavioral biases and promote more rational investment decision-making. The study also contributes to the behavioral finance literature by integrating cognitive and emotional dimensions in explaining investment behavior in emerging markets.