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Spilled Milk

Regret aversion is an emotional bias that makes people delay or avoid choices because they dread the feeling of being proven wrong. In everyday terms, it is the urge to stand still rather than risk responsibility for a mistake. In investing and personal finance, that stance can be as costly as a bad call, since inaction is in itself is a choice with consequences.

Investors are not only motivated by gains and losses; they also try to dodge the sting of decisions that later look mistaken, and that motive can steer behaviour in powerful ways.

Why it matters now
Uncertainty is constant for investors, and recent months—along with upcoming elections—fit that pattern. Markets swing, interest rates shift, inflation lingers, and global developments keep volatility elevated. In that setting, many people freeze, worried that any move could be the wrong one.

It is common to see investors who understand they should review portfolios, boost retirement savings, add international diversification, or raise risk to hedge inflation, yet put those steps off for years. The blocker is rarely knowledge; it is the fear that a decision could later be judged as incorrect. This tendency becomes especially clear after sharp market falls, when those who lost money (or had poor experiences with a prior advisor) grow reluctant to re-enter markets, anxious about repeating the

error.

Is it FOMO?
Regret aversion describes the habit of avoiding choices that might trigger future remorse, driven more by emotional com-fort than by dispassionate analysis. Behav-ioural finance splits regret into two types:
• Errors of commission: pain from acting and later wishing you hadn’t.
• Errors of omission: pain from not acting and later wishing you had.
Studies suggest that, in the near term, people tend to dread errors of commis-sion more, which nudges them toward inaction.

Audit yourself
Ask yourself:
• Have you waited to invest because you feared a market drop?
• Have you kept a losing position be-cause selling would mean admitting error?
• Do you delay key financial choices for fear of picking wrongly?

• Have you skipped a meeting with an advisor because you were unsure what changes would be proposed?
• Do you often wait for “the perfect moment” before acting?
If several resonate, regret aversion may be shaping your financial behaviour.

Origins of the behaviour
Disliking being wrong is human nature. When weighing investment choices, many picture the discomfort of a bad outcome, and that imagined regret can feel overwhelming. Kahneman and Tversky’s Prospect Theory helps explain the pattern: losses hurt more than equiv-

alent gains feel good, so the prospect of future disappointment looms large. Social pressure can intensify the effect, as people worry about how family, colleagues or friends might judge a decision that turns out poorly.

How does it effect your portfolio?
Regret aversion often surfaces after market declines, when investors who suffered losses shift to cash and then stall on reinvesting, fearing another drop. It also appears with lagging holdings: investors hold on to losing shares because selling would force them to concede that the original call was mistaken.