What is Fear of Regret? | Understanding Cognitive Biases

What is Fear of Regret? And why ‘last chances’ make us panic

Consider the following two stories:

First Story

Paul owns shares in company A. During the year, he considered selling them and buying shares in company B. In the end, he didn’t. Today he knows that if he had done so, he would have been up $1,200.

Second Story

George had shares in company B. During the year, he sold them and bought shares in company A. Today he also knows that if he had stuck with B, he would have netted an extra $1,200.

Who feels more regret?

Regret is the feeling of having made the wrong decision. You wish someone would give you a second chance.

When asked who would feel worse, 8% of respondents said Paul, whereas 92% chose George.

Why?

Considered objectively, the situations are identical. Both Paul and George were unlucky, picked the wrong stock, and were out of pocket by the exact same amount.

The only difference: Paul already possessed the shares in A, whereas George went out and bought them. Paul was passive, George, active. Paul embodies the majority – most people leave their money lying where it is for years – and George represents the exception. It seems that whoever does not follow the crowd experiences more regret.

It is not always the one who acts who feels more regret. Sometimes, choosing not to act can constitute an exception.

An example

A venerable publishing house stands alone in its refusal to publish trendy e-books. Books are made of paper, asserts the owner, and he will stick by this tradition. Shortly afterward, ten publishers go bankrupt. Nine of them attempted to launch e-book strategies and faltered. The final victim is the conventional paper-only publisher.

Who will regret the series of decisions most, and who will gain the most sympathy?

Right: the stoic e-grumbler.

Here is an example from Daniel Kahneman’s book Thinking, Fast and Slow

After every plane crash, we hear the story of one unlucky person who actually wanted to fly a day earlier or later, but for some reason changed his booking at the last minute. Since he is the exception, we feel more sympathy for him than for the other ‘normal’ passengers who were booked on the ill-fated flight from the outset.

The fear of regret can make us behave irrationally

To dodge the terrible feeling in the pits of our stomachs, we tend to act conservatively, so as not to deviate from the crowd too much. No one is immune to this, not even supremely self-confident traders.

Statistics show that each year on December 31 (D-day for performance reviews and bonus calculations), they tend to offload their more exotic stocks and conform to the masses.

Similarly, fear of regret (and the endowment effect) prevents you from throwing away things you no longer require. You are afraid of the remorse you will feel in the unlikely event that you needed those worn-out tennis shoes after all.

The fear of regret becomes really irksome when combined with a ‘last chance’ offer

A safari brochure promises ‘the last chance to see a rhino before the species is extinct’. If you never cared about seeing one before today, why would you fly all the way to Tanzania to do so now? It is irrational.

Let’s say you have long dreamed of owning a house. Land is becoming scarce. Only a handful of plots with lake views are left. Three remain, then two and now just one. It’s your last chance! This thought racing through your head, you give in and buy the last plot at an exorbitant price.

The fear of regret tricked you into thinking this was a one-time offer, when in reality, real estate with a lake view will always come on the market. The sale of stunning property isn’t going to stop any time soon. ‘Last chances’ make us panic-stricken, and the fear of regret can overwhelm even the most hard-headed dealmakers.

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Salience Effect – HOW EYE-CATCHING DETAILS RENDER US BLIND

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Default Effect – WHY YOU GO WITH THE STATUS QUO

The above article is from the book The Art of Thinking Clearly by Rolf Dobelli. The article is only for educational and informative purposes to explain and understand cognitive biases. It is a great book, definitely worth a read!