Acharya Prashant explains that fear arises when an individual lacks self-knowledge and instead constructs a self-image based on worldly standards and social expectations. When one does not know their true identity, they borrow an idealized and sanitized image from society, media, and literature. This borrowed identity creates a sense of inferiority because no one can truly live up to these distorted standards. The speaker notes that the world is obsessed with sex, leading young men to adopt an image of a sexual predator or gymnast, which results in deep-seated fears of not meeting these performance-based expectations.