Regret Theory
A theory that says people anticipate regret if they make a wrong choice, and take this anticipation into consideration when making decisions. Fear of regret can play a large role in dissuading or motivating someone to do something.
Investopedia Commentary
In investing, the fear of regret can make investors either risk adverse or motivate them to take greater risks. For example, an investor buys stock in a small growth company based only on a friend's recommendation. After six months, the stock falls to 50% of the purchase price, so the investor sells the stock at a loss. To avoid this regret in the future, the investor will ask questions and research any stocks that his or her friend recommends.
Conversely, say the investor didn't take the friend's recommendation to buy the stock, but subsequently, the price increased 50% rather than decreased. Thus, to avoid the regret of missing out, the investor will be less risk adverse and buy any stocks that his or her friend recommends in the future.
Related Links
Taking A Chance On Behavioral Finance
Trading Psychology: Consensus Indicators - Part 1
Assessing Market Behavior with the Herrick Payoff Index and New High-New Low Index
See also: Anchoring, Behavioralist, Growth Company, Mental Accounting, Prospect Theory, Risk Adverse