Every one of us knows the feeling of regretting a decision in retrospect. Regret is not just a consequence of bad decisions - it is also the cause. Find out how the fear of regret and remorse influences our decisions and how you can deal with it.
You have invested 5,000 euros in a share. Since you have owned the share, the price has hardly changed. You are holding it at a value of 5,000 euros. The share index, on the other hand, has risen sharply. What should you do now? Sell the share? What if it makes a jump next week and catches up with the index? You would be terribly annoyed. So you should keep the stock after all.
After weeks of analysis and numerous meetings, the decision has to be made. Should your company dare to enter the new market? The business results are actually very good. Is it worth taking the new risk? Invest time, staff and money? What if it goes wrong? It would be better to postpone market entry and wait to see how the situation develops.
Another lottery jackpot. You make a spontaneous decision. The tobacconist asks you whether you want to say "yes" to the joker. What if your numbers are drawn? Better safe than sorry - it only costs €1.30.
When making decisions, especially in financial matters, we calculate in our considerations whether we might regret something afterwards or not. Psychology speaks of regret aversion. We try to avoid the feeling of regret and align our decision-making behavior with expected feelings of regret. Our level of regret does not depend on the absolute result of the chosen alternative. Rather, it arises in comparison with the results of the options not chosen. Our choice may lead to the desired result, but another would have surpassed it. We already regret not having decided differently.
The extent of regret felt depends not only on the relative comparison of the results of different alternatives but also on the following factors:
Self-involvement
The more influence and responsibility we have in the decision-making process, the more we deal with possible negative consequences and emotions. If we have delegated the choice and only carry out the recommended action, we feel less regret. This is one reason why decisions are often delegated.
Change
If we take active action and a suboptimal result emerges, we regret our decision greatly. If, on the other hand, we decide not to initiate any change and maintain the state of affairs, our regret is less if the result is negative. This is one reason why we like to choose the status quo in uncertain situations. Because: If things go wrong, it hurts less emotionally at least.
Voluntariness
If we cannot choose freely ourselves, as in the case of fate or coercion, our regret is low. In these situations, we have little or nothing to blame ourselves for.
Majority opinion and standard option
We also feel little regret when choosing generally accepted alternatives or routine decisions. In various contract templates, one variant is presented as the standard option. Deviating from this variant is perceived as riskier. This reduces the likelihood of unusual or unconventional actions. The brand industry also relies on this effect. Branded products give us broad acceptance and a feeling of security and quality. Therefore, when making uncertain decisions, we are inclined to spend more money on a branded product than on a no-name product.
Third-party profits
If other people benefit from our suboptimal choice, we tend to feel more regret (social takeover). The malicious look of a colleague or the feeling of having been taken advantage of is enough for this.
Retrospective
The easier the future comparison of the alternatives and the more immediately this information is accessible, the greater the expected and also perceived regret.
Number of alternatives
As the number of alternatives increases, the probability of a suboptimal choice increases. Therefore, the regret factor becomes more important as freedom of choice increases.
In summary, regret aversion leads us to take possible disadvantages and risks more into account when considering alternatives. This is important and helpful in many everyday situations. But what happens in unclear, complex situations whose future development is difficult to predict? In other words, those situations that we encounter most frequently in business life?
We get caught up in long research and avoid the decision-making situation.
We delegate the decisions to others and pay fees to third parties.
We prefer standard decisions and routine decisions that can be justified more easily.
We prefer to decide to do nothing (status quo bias) instead of taking active action.
These classic behaviors reduce the expected regret, but are not conducive to the actual problem. Not making a decision and maintaining the current state are common mistakes in companies. Even if we don't change ourselves, the world around us changes. Adaptation processes missed today can be the cause of economic problems tomorrow.
In addition, avoiding regret and remorse can also lead us to choose risky alternatives. Namely when choosing the risky alternative means that a later comparison of the results can be ruled out. Low comparability of the chosen alternative with non-chosen alternatives encourages this behavior.
The desire to avoid regret and remorse is a strong emotional motive. We can neither negate nor shut off these emotions. However, when designing decision-making situations, you can actively reduce the expected regret without negatively affecting the quality of the decision. You can take the following measures:
Goal definition
Define clearly and verifiably what goal you are pursuing. Specify which criteria would have to be met for a suitable alternative and which dimensions you can use to check later whether you have achieved your goal.
Selection of information and alternatives
Do not passively surrender to the flood of information. Actively select information and alternatives based on your criteria. Remember that our capacity to process information is limited. So it is not the quantity of information that leads to good decisions, but its quality. Likewise, limit the alternatives you have developed to three or four options.
SWOT analysis
Analyze the alternatives you have chosen in terms of their strengths and weaknesses, opportunities and risks. In this analysis, also consider the status quo and a possible standard option. What risks do these two variants entail? Do they help or hinder your goal? What responsibility do you have if you do not act?
Say goodbye to finality
As decision-making processes involve effort and sacrifice, we try to avoid these situations. We like to have the feeling that something can be decided and then put away. Rather, complex and self-changing situations require ongoing adjustment of decisions made. Therefore: free yourself from the idea that a one-off decision has solved the problem. Likewise, there are no such things as good or bad decisions per se. The biggest mistake you can make is not checking the fit between the chosen alternative and the environment or the desired goal. Constantly check the effects of your alternative and let it grow with the environment.
Looking towards the goal
Don't be tempted to judge the chosen alternative based on options you didn't choose. This won't change your current situation, nor will it help you with decisions in the future. Measure your alternative against the achievement of the set goal. Using this actual-target comparison, you can identify the need for adjustment and opportunities for improvement. This can improve your current situation, without any regrets.
Regret aversion is an aspect of decision psychology. Simply adapting the framework conditions in decision-making processes to this effect can significantly improve the quality of decisions in your company. Choose one or two points and start integrating them into your decision-making processes. You will see the difference.
Would you like to learn more about decision management or make decision-making processes in your company more effective? We are happy to be available for further discussions and to support and implement measures.
Your decision.
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