Regret Aversion
Avoiding decisions that could produce regret, which biases toward inaction and toward doing what everyone else did.
MadStockAlerts Research · Updated August 28, 2026
What to take away
- Regret from action is felt more strongly than regret from inaction.
- That asymmetry biases toward doing nothing, including holding a losing position.
- It also biases toward conventional choices, which are easier to justify.
- It is a principal mechanism behind herding among professionals.
- Pre-commitment converts a decision into a rule and removes the moment of choice.
MAD Academy Training Video · 0:45
Avoiding the Feeling, Not the Loss
Regret aversion changes behaviour to minimise how bad a decision will feel rather than how much it costs.
This lesson is part of a Stock Alerts + Tools plan.
The asymmetry
Experimental work consistently finds that a bad outcome resulting from an action produces stronger regret than an identical outcome resulting from inaction. Selling and watching it rise feels worse than holding and watching it fall by the same amount.
That asymmetry has a direct consequence in markets: inaction is the default, and the default is applied to positions that should be closed as much as to those that should be held.
Where it shows up
| Behaviour | The regret being avoided |
|---|---|
| Holding a loser | Realising the loss makes the mistake definite |
| Not entering after missing an entry | Buying higher and then being wrong |
| Choosing a conventional holding | Being wrong in an unconventional way |
| Not rebalancing | Selling something that then rises further |
| Following the crowd | Being wrong alone |
The third and fifth rows connect this directly to herding. A conventional position is easier to defend afterwards, and ease of defence is a form of regret minimisation rather than an assessment of merit.
The omission bias in a portfolio
Pre-commitment
The countermeasure that works is removing the moment of choice. A rule decided in advance converts the decision into an execution, and executing a rule produces far less regret than choosing to act.
- A written exit condition, decided before entry.
- A rebalancing schedule, so the sale is a rule rather than a judgement.
- A defined position size, so the sizing decision is not made in the moment.
- A stop order, which acts without requiring a decision when acting is hardest.
Every article in this pillar arrives at the same countermeasure from a different direction, which is itself informative. The pressures differ and the defence is the same: decide in advance, in writing, when nothing is at stake.
Designing around it
The bias cannot be reasoned away, and the environment in which decisions are made can be changed so that it operates less.
| Change | Why it helps |
|---|---|
| Automate the action | A standing order or a scheduled rebalance removes the moment of choice |
| Decide at a fixed time | Rather than when the position is most uncomfortable |
| Frame inaction as a decision | Holding is a choice to buy at today's price, and stating it that way removes the default |
| Record the reasoning | Which makes a later override visible rather than invisible |
The third row is the most portable. Every article in this pillar arrives at a version of it: asking whether the position would be opened today converts an omission into a decision, and the asymmetry only applies to decisions that feel like actions.