How Regret Theory Affects Your Investment Choices

13 January 2026

Ever made an investment and then wished you hadn’t? Or worse, not invested and felt like slapping yourself later when the stock skyrocketed? Yep, we’ve all been there — welcome to the world of Regret Theory. It's one of those sneaky behavioral finance concepts that creeps into your decisions without even ringing the doorbell.

In this post, we’re going on a deep dive (but don't worry, it’ll be a fun one) into how Regret Theory messes with your investment choices, and more importantly, how to get a grip on it before it costs you more than just sleep.

What Is Regret Theory Anyway?

Alright, let’s break it down. Regret Theory is a concept in behavioral economics that explains how people anticipate regret if they make a wrong decision — and how that anticipation can influence the choices they make.

Picture this: you’re standing at a buffet. You pick the lasagna. Ten minutes later, you see someone with the steak, and it looks amazing. Suddenly, your lasagna tastes like cardboard. That feeling? That’s regret. Now apply that to investing. You buy Stock A. Stock B, the one you almost picked, shoots up 50% the next week. Boom — regret. And that experience starts affecting how you pick stocks in the future.

Why Regret Hits So Hard with Money

Let’s be real — money is emotional. It’s about survival, freedom, dreams... and yeah, status too. So when we lose it or miss out on a chance to grow it, the regret bites hard.

Investing isn’t just numbers and charts; it’s emotions, big time. When people talk about the “pain” of losing money, they mean it literally — our brains process financial loss similarly to physical pain.

Here’s why regret is extra spicy in investing:

- High stakes: You’re playing with your hard-earned cash.
- Uncertainty: You’ll never have all the info when you need to make a decision.
- Comparison: It’s easy to compare with what “could have been” — especially with social media and news constantly shouting about the latest winning crypto or stock.

How Regret Theory Sneaks Into Your Investment Decisions

Now that you get the basics, let's talk about the sneaky ways regret theory shows up in real-life investment choices.

1. Fear of Missing Out (FOMO)

Oh man, this one’s brutal.

You see a stock pumping fast. Everyone’s talking about it. You didn’t invest because you were unsure — maybe even cautious. But now it’s blowing up and you’re beating yourself up.

So what happens next time? You jump in too quickly, just so you won’t feel that regret again. But now you’re not investing smartly — you’re investing emotionally.

2. Holding Onto Losers

Say you bought a stock that tanked. It’s 40% down. You know you should probably cut your losses, but you don’t. Why?

Because selling would mean admitting you made a bad decision — and triggering regret. So you cling to hope, convincing yourself it’ll bounce back. (Sometimes it does, but sometimes… it just digs deeper.)

3. Not Taking Profits When You Should

Here’s the flip side. You’ve got a stock that’s 30% up. Nice! But you're afraid to sell because… what if it hits 50%? You’d regret selling too early, right?

So you wait. And then the stock dips. And you’re left kicking yourself AGAIN, wondering why you didn’t just take your win and walk.

Regret makes you second guess everything — and it keeps you in this emotional loop of “what ifs.”

Regret Aversion: The Real Culprit

Another term you’ll hear tossed around is “regret aversion.” It’s just what it sounds like — the tendency to avoid making decisions that could later cause regret.

Ironically, this desire leads to inaction or poor decision-making. You might avoid investing altogether because you’re scared of making the wrong choice.

Or, you might only pick ultra-conservative investments, even when your risk tolerance (and goals) suggest you could afford to be a bit more bold.

In short: regret aversion keeps you stuck.

The Psychology Behind It (Without the Dry Jargon)

Let’s keep it simple. Regret theory was introduced by economists Loomes and Sugden back in 1982. They figured out that people choose options not just based on expected outcomes — but also based on how much regret they think they’ll feel if they guess wrong.

So instead of choosing what’s most “rational,” you choose what feels safest emotionally. But safe doesn’t always equal smart.

Think of your brain like a GPS — if it's constantly rerouting to avoid regret-laden roads, you're going to take the long (and sometimes wrong) route.

How To Outsmart Regret and Invest Smarter

Alright, now we’re getting into the good stuff. How can you stop regret from hijacking your portfolio?

1. Set Clear Rules Before You Invest

This is huge. If you go into every investment with a plan — entry point, target return, exit strategy — you’re way less likely to let emotions take over.

Having a plan creates structure and removes the need to make a last-minute emotional call when things get shaky.

2. Accept That Regret Is Inevitable

Seriously, just embrace it. Regret is part of the game. There will always be a “better” stock you could’ve picked. There will always be someone who got in earlier or made more.

Let it go.

Instead of aiming for perfect decisions, aim for consistent ones. That’s where the real magic happens.

3. Don’t Obsess Over "What Ifs"

Ruminating over missed opportunities is like reading yesterday’s weather forecast — it’s useless.

What matters is what you learned from the experience. If a decision didn’t work out, figure out why. But don’t beat yourself up for not having a crystal ball.

4. Use Regret As a Learning Tool

Regret doesn’t have to be your enemy. Flip the script — make it your teacher.

Keep a journal of your investment decisions. Write what you were thinking, why you chose a specific asset, and how you felt after. Over time, patterns will emerge. You’ll start noticing when emotion was driving versus solid reasoning.

Self-awareness is a powerful weapon in the war against bad investing habits.

5. Diversify Your Portfolio

Here’s a practical one — spread your risk.

When you diversify, a poor performer doesn’t sting quite as much because it's balanced out by others. You're less likely to regret picking one investment when you’ve got 5-10 others in your corner doing their thing.

6. Tune Out the Noise

Financial news? Social media? Your cousin who “knows a guy” in crypto?

They can all feed your regret monster if you’re not careful.

Stick to your strategy. Trust your research. Avoid making moves based on what everyone else is doing. That’s how you stay steady in the storm.

Investing Without Regret Isn’t Possible — But It Is Manageable

Let’s be honest — you’re never going to be 100% regret-free. That’s not the goal.

The goal is to keep regret from driving the car. Let it ride in the backseat if it must — just don't hand it the wheel.

Investing is about long-term success, not short-term perfection. If you keep chasing the perfect pick or obsessing over every misstep, you’ll drive yourself nuts. And that’s no way to build wealth.

Cut yourself some slack. Learn from your mistakes. And remember: even the pros make moves they later regret — they just don't let those regrets stop them from moving forward.

Final Thoughts

Regret Theory is real, and it can seriously mess with your ability to make smart financial decisions. But now that you’re aware of it, you’ve got the upper hand.

Investing is like surfing — you’re never going to control the ocean, but you can learn to ride the waves. Regret will come and go. The trick is not to drown in it.

Stick to your strategy, keep your emotions in check, and use regret as a rearview mirror — something to glance at briefly, not something to steer by.

Happy investing, and may your future self thank you (instead of saying, “Why didn’t we just buy that ETF?!