Home • Behavioral Finance

Regret Aversion

 
Regret aversion is the tendency to avoid making decisions that might result in feelings of regret. In the context of investing, regret aversion can lead individuals to make suboptimal decisions that aim to minimize the chance of experiencing regret, such as failing to sell losing investments in the hope of recouping losses, or avoiding taking on new investments because of a fear of losing money. This behavior can prevent individuals from maximizing their returns and achieving their financial goals. It can also lead to suboptimal portfolio construction, as individuals may hold onto underperforming assets instead of selling them and reallocating their portfolio to more profitable investments. To manage regret aversion, investors can work with financial advisors, create a well-diversified portfolio, and set clear investment goals that help to guide their decision-making.

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