Monday, March 31, 2008
Paul owns shares in Company A. During the past year he considered switching to stock in Company B, but he decided against it. He now finds out that he would have been better off
by $1,200 if he had made the switch. George owned shares in Company B. During the past year he switched to stock in Company A. He now finds out that he would have been better off by $1,200 if he not done anything. Who feels more regret?
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Psychologists Daniel Kahneman and Amos Tversky posed this question many years ago to a group of volunteers. They found that although both Paul and George lost the same amount of money and for the same reason -- they owned stock in Company A rather than Company B -- most volunteers believed George would experience more regret than Paul, because George's loss was the result of his action, whereas Paul's loss was the result of inaction.
When something bad happens to us as a result of our actions, we kick ourselves harder than when bad things happen to us because of our inactions. As a result, because people want to minimize regret in their lives, Kahneman and Tversky argued that people were more likely to prefer inaction over action.
Marcel Zeelenberg at the University of Tilburg in the Netherlands, however, showed in a more recent psychological experiment that volunteers who were asked to play the role of a soccer coach pursued opposite strategies when they had a winning streak vs. a losing streak. When their teams were winning, the desire to avoid regret prompted the "coaches" to keep teams the way they were. When teams were losing, however, the desire to avoid regret prompted the "coaches" to prefer change. In each case, Zeelenberg argued, volunteers followed strategies that were the least likely to cause them regret -- rather than strategies that were most likely to produce victory.