Pride and Regret
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Pride and regret
• Pride = the emotional joy of realising that a decision
turned out well.
– I was right! I’m smart!
• Regret = the emotional pain of realising that a decision
turned out to be a bad one.
– I was wrong! I’m not smart as I thought!
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Pride and regret
• Experimental psychologists have documented that
people try to…
– avoid actions that will create regret and…
– …seek actions that will cause pride.
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Regret - Example
• You’re checking the price of a ticket for a flight from
Southampton to Shanghai:
• Should you buy it now?
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Regret
Two possible sources of regret:
• Regret of commission ➔ when you make a decision
that turns out to be a bad one.
– You buy the ticket, and 2 days later you find out the ticket is
now £50 cheaper.
• I should’ve waited!
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Regret
Two possible sources of regret:
• Regret of omission ➔ when you don’t act and, in
hindsight, you realise you’ve foregone a good
opportunity.
– You don’t buy the ticket and later, when you need to buy it
urgently, you find out the ticket is now £100 more expensive.
• I should have bought it!
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Regret
Experimental research shows that:
• Generally, a regret of commission is more painful
than a regret of omission.
• Regret is most palpable and takes the greatest toll on
decision making when the outcomes of foregone
alternatives are highly “visible” or “accessible”.
– E.g. (A) you buy a ticket for Shanghai and then forget about it.
– (B) You buy a ticket for Shanghai and, few days later, your
friends are talking about prices for this flight, and you realise the
ticket is now much cheaper.
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Pride, Regret, and the Disposition Effect
• Pride and Regret are likely to be contributing factors to
the disposition effect.
– If you sell a winning stock:
• It validates you decision to buy it.
• Locking in the profit makes you feel proud.
– I was right! I’m a smart investor.
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Pride, Regret, and the Disposition Effect
• Pride and Regret are likely to be contributing factors to
the disposition effect.
– If you sell a losing stock:
• You have to admit to yourself that your decision was bad.
• You’ll feel the pain of regret.
– I was wrong! I’m not as smart as I thought!
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Pride, Regret, and the Disposition Effect
• Pride and Regret are likely to be contributing factors to
the disposition effect.
• Implication:
– Investors tend to sell winners and hold on to losers.
– Investors sell winners too early & ride losers for too long.
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