Скачать или смотреть Understanding Regret Aversion Bias

Explain : Regret Aversion Bias

An investor is said to be suffering from regret aversion bias when he/she refuses to make any decision because of the fear that the decision will turn out to be wrong and then may later lead to feelings of regret. The emotional process behind this pretty simple. Regret causes emotional pain. Hence, the brain tries to avoid making decisions that cause regret.

It is important to understand that investors can make two different types of errors. On the one hand, they can make a decision which turns out to be wrong. This can be called an error of commission because some action has been committed by the investor. On the other hand, an investor can simply miss out on a great opportunity by not taking any decision. This can be called an error of omission because of the lack of any action from the investor.

In financial terms, an investor may be likely to lose the same amount of money either by commission or by omission. However, when it comes to psychological terms, the commission error has a much higher chance of inducing regret. This is because regret is usually associated with a responsibility for an action taken. This is the reason that in case of regret aversion, no action becomes the default response of the buyer.