Regrets in Finance and Romance
How does the fear of regret affect our dating behavior?
Posted Dec 21, 2017
One of the most well-known biases in financial behavior is called the “disposition effect.” It refers to situations in which investors hold on tight to a losing asset. When we enter into a new investment, whether it be a mutual fund, a specific stock, or even Bitcoin, we will be very reluctant to sell the asset at a loss. We will almost always prefer to hang on to it until it picks up again, almost regardless of the prospects that it will eventually move into profit territory.
A related behavioral bias is the “sunk cost bias.” Each and every one of us has experienced a situation in which he or she started a new project at home or at work with a substantial expectation of it thriving and doing well. While putting enormous effort into the project, we gradually notice that it’s going nowhere. We can still opt out of this fruitless enterprise but instead we find ourselves hanging on to it longer and longer, exerting more and more effort in spite of our gut feeling that it will bring nothing in return.
Why do we fall into these traps? Why do logic and reasoning fail to rescue from these muddy ponds early enough?
The driving force for such behavior is the fear of regret!
Regret is an enormously important emotion designed by evolution to facilitate learning. We cannot learn from our mistakes without regret. Without this painful stimulus we would keep repeating the same mistake over and over again. Regret warns us ahead of time not to do something we have done in the past and felt sorry about later. But regret is painful. We fear it and try to avoid it whenever possible. If the asset we bought depreciates in value, selling it at a loss will trigger regret. We will be compelled to admit to ourselves (and possibly to others) that we made a mistake in buying it in the first place. Instead, holding on to it allows us to avoid regret since there’s still a chance that its value will go up again sometime in the future.
When we terminate a project before it materializes because we realize that it’s going nowhere we likewise experience regret. “How the hell did I get into this mess?” would be a typical reaction. Trying unreasonably to move the project forward will allow us to avoid regret temporarily, while forcing us to sink more cost into it.
The sunk cost bias quite often hits us also in our dating behavior when we hang on to a relationship that we well know is going nowhere. A futureless relationship that lacks love or passion can be justified if it either serves some social purpose or serves as a remedy for loneliness. But often such relationships survive on very different grounds, namely, the inconvenience of terminating them. Ending a relationship, again, compels us to admit a failure: a failure to make oneself attractive enough to the other party, or a failure to feel attracted to the other party. We may sometimes argue to ourselves that since we have come this far with the relationship we ought to give it another chance – when we know that there is no chance. Again, as long as the relationship is alive we experience no regret, but when it terminates regret is pulled out in the form of self-discernment, and eventually self-judgment. Interestingly, the same force that holds us to a failed relationship also prevents us from starting a relationship when we have none. Fearing regret makes the status quo amazingly attractive because regret typically emerges when we do something to change the status quo and find ourselves worse off.
Is there a remedy for the fear of regret? The most effective remedy is to allow yourself to be advised. In the case of financial decisions, this is typically achieved by hiring a financial adviser. Doing so reduces the fear of regret substantially, because it is not we alone who make the decision and it is not we alone to blame if it turns out to be wrong. But the very same logic applies to a romantic regret. Allow yourself to get advice from a close friend or a family member when starting a new relationship or before terminating one. In addition to having an unbiased opinion it will also allow you to share the burden of regret with someone else if you realize that you made a wrong decision. This will make the departure from the status quo much easier.
Comfortable as it may feel, anyone who lets the status quo take them over will soon lose track of their first goal, namely, finding a suitable partner.