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Regulating Regret

Regret can be defined as the emotion one experiences when realizing or imagining that a current situation would have been better if one had previously made a different decision. So potent is this emotion that Daniel Kahneman , a behavioral economist and Nobel Prize winner, argues that when making decisions people do not seek to maximize utility (benefits), they actually seek to minimize regret.

Economists, neuroscientists and psychologists have been researching regret for decades. A report by two researchers entitled A Theory of Regret Regulation 1.0 relying on more than twenty years of research performed across various disciplines includes many interesting insights.

According to the paper, regret distinguishes itself from other negative emotions (e.g. anger, guilt, shame or envy) as it can only be triggered by one’s action or the lack thereof. As the authors put it: “All other negative emotions can be experienced without choice, but regret cannot, [hence] the connection between regret and responsibility.“ This unique feature gives regret a very special dimension.

An area of debate is the commonly-held view that action produces more regret than inaction and, consequently, that the fear of regret promotes inaction. The authors postulate that it is actually not the case based on their research. Instead they conclude that the more justifiable a decision is (whether to act or not to act), the lower the risk of future regrets.

Regret aversion does support conventional choices (e.g. brand names instead of generics, black car instead of yellow car). This is driven by the notion that conventional choices are by definition endorsed by many, which lowers any given decision maker’s individual responsibility. The fear of regret evidently does not foster the implementation of contrarian strategic moves.

In an M&A context, preferences for conventional targets can explain why it is more motivating for a bidder to compete in an auction process when the quality of the target is validated by the existence of competing bidders than when everyone else has dropped, even if the likelihood of securing the deal is higher. More generally, there is no doubt that the anticipation of regret and, with it, the desire to minimize regret drives many aspects of any M&A process.

My takeaway is that regret is a powerful force driving behavior and decision making which must be reckoned with. Individuals are prepared to go at great length to avoid regret, including by making conventional choices, and to seek to share responsibility for it when it arises. Instead, leaders are required to make uncomfortable choices and embrace accountability. This makes the ability to regulate regret at a personal level an absolutely critical leadership skill.

As a side yet related note, one of the best French songs of the last decade is called ‘Dommage’ (‘Too bad’), an artistic illustration of regret. Video link, lyrics and their translation below for a brief exotic trip to some French culture (and a good lesson of French).

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