The Art of Thinking Clearly: Better Thinking, Better Decisions

See also Decision Fatigue (ch. 53); Paradox of Choice (ch. 21); Loss Aversion (ch. 32)

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82
WHY ‘LAST CHANCES’ MAKE US PANIC
Fear of Regret
Two stories: Paul owns shares in company A. During the year, he considered
selling them and buying shares in company B. In the end, he didn’t. Today he
knows that if he had done so, he would have been up $1,200. Second story:
George had shares in company B. During the year, he sold them and bought
shares in company A. Today he also knows that if he had stuck with B, he would
have netted an extra $1,200. Who feels more regret?
Regret is the feeling of having made the wrong decision. You wish someone
would give you a second chance. When asked who would feel worse, 8% of
respondents said Paul, whereas 92% chose George. Why? Considered
objectively, the situations are identical. Both Paul and George were unlucky,
picked the wrong stock, and were out of pocket by the exact same amount. The
only difference: Paul already possessed the shares in A, whereas George went
out and bought them. Paul was passive, George, active. Paul embodies the
majority – most people leave their money lying where it is for years – and George
represents the exception. It seems that whoever does not follow the crowd
experiences more regret.
It is not always the one who acts who feels more regret. Sometimes, choosing
not to act can constitute an exception. An example: a venerable publishing house
stands alone in its refusal to publish trendy e-books. Books are made of paper,
asserts the owner, and he will stick by this tradition. Shortly afterward, ten
publishers go bankrupt. Nine of them attempted to launch e-book strategies and
faltered. The final victim is the conventional paper-only publisher. Who will regret
the series of decisions most, and who will gain the most sympathy? Right: the
stoic e-grumbler.
Here is an example from Daniel Kahneman’s book 
Thinking, Fast and Slow
:
after every plane crash, we hear the story of one unlucky person who actually
wanted to fly a day earlier or later, but for some reason changed his booking at
the last minute. Since he is the exception, we feel more sympathy for him than for
the other ‘normal’ passengers who were booked on the ill-fated flight from the

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outset.
The
 fear of regret
can make us behave irrationally. To dodge the terrible feeling
in the pits of our stomachs, we tend to act conservatively, so as not to deviate
from the crowd too much. No one is immune to this, not even supremely self-
confident traders. Statistics show that each year on December 31 (D-day for
performance reviews and bonus calculations), they tend to offload their more
exotic stocks and conform to the masses. Similarly, 
fear of regret
(and the
endowment effect
) prevents you from throwing away things you no longer require.
You are afraid of the remorse you will feel in the unlikely event that you needed
those worn-out tennis shoes after all.
The
 fear of regret
becomes really irksome when combined with a ‘last chance’
offer. A safari brochure promises ‘the last chance to see a rhino before the
species is extinct’. If you never cared about seeing one before today, why would
you fly all the way to Tanzania to do so now? It is irrational.
Let’s say you have long dreamed of owning a house. Land is becoming scarce.
Only a handful of plots with lake views are left. Three remain, then two and now
just one. It’s your last chance! This thought racing through your head, you give in
and buy the last plot at an exorbitant price. The 
fear of regret
tricked you into
thinking this was a one-time offer, when in reality, real estate with a lake view will
always come on the market. The sale of stunning property isn’t going to stop any
time soon. ‘Last chances’ make us panic-stricken, and the 
fear of regret
can
overwhelm even the most hard-headed dealmakers.