◐ Behavioral
◆ The PatternFear of making a decision you'll regret.
Regret aversion — making decisions to minimize future regret rather than maximize expected value.
Two forms:
• Errors of commission: "I bought → it crashed → I regret acting"
• Errors of omission: "I didn't buy → it soared → I regret NOT acting"
Short-term: we regret actions more. Long-term: we regret inactions more.
• Errors of commission: "I bought → it crashed → I regret acting"
• Errors of omission: "I didn't buy → it soared → I regret NOT acting"
Short-term: we regret actions more. Long-term: we regret inactions more.
In markets, regret aversion causes paralysis, herd-following ("at least I won't be the only one who's wrong"), and excessive conservatism.
Pattern bridge: Avoiding regret over avoiding loss is a second-order bias. In ML, regularization trades some training error for less regret on unseen data.