Regret Aversion
Avoiding decisions because of the anticipated pain of regret if they turn out badly.
How it is identified
Test: the choice minimises anticipated regret rather than maximising expected outcome
Unit
qualitative
In depth
Regret is felt more intensely for actions than for inactions and for unconventional choices than for conventional ones, which produces two effects: paralysis, and a preference for doing what everyone else is doing. The second is why professional investors herd — being wrong alongside the consensus attracts less blame than being wrong alone. Regret aversion also drives the reluctance to invest a lump sum, since a fall immediately afterwards would be maximally regrettable. Naming the anticipated regret in advance, and accepting that some decisions will look wrong afterwards, is what allows a plan to be followed.
Worked example
An investor holds ₹15,00,000 in cash for nine months, waiting for a better entry. The market rises 14%, so the avoided regret of buying before a fall cost ₹2,10,000 of foregone return.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Regret Aversion” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.