Episode 4: How trying to avoid regret changes our behavior

Let’s talk about regret aversion. Again, fancy phrase, simple idea. Let’s go on a mind-journey!

Imagine this.

You’re at home cleaning out an old shoe box of junk. I mean, you’ve had this stuff forever since you were a kid. But do you really need that candy bar from 17 years ago that you’ve been keeping just to “see what happened in 10 years?” No. No you don’t.

You’re rifling through your items while sitting on the floor, and sifting things into keep or trash piles. Suddenly you spot under some papers a small pack of NBA basketball cards held together with a rubber band. Man! You’d forgotten that your uncle used to buy you these as a bribery present so you’d like him whenever he came to visit.

You did really like them though, so bribe accepted. You ponder that maybe you should be bribing your own nieces and nephews more. Nodding your head as you have learned another lesson about adulting, you pop the rubber band off and take a look to see what you’ve got. Boring. Retired. Meh. OH WOW! It’s a rookie Shaq card. What a find!

You of course know from your great NBA knowledge that Shaq exploded onto the NBA as a rookie, averaging 23 and 14 and instantly dragging the Orlando Magic into the realm of interestingness, only to leave for the Lakers like everyone else, casting Orlando back into uninterestingness until the disaster that was Dwight Howard a decade later.

But this card is worth money. You do some quick research online and find out that this card is actually part of a famous run by a famous brand, is really rare, and in very high demand. You get in touch with a dealer and you negotiate him up to $1,200 for the card. You’re worried you can get a better deal, but there’s no point in holding on to the card. And hey! You forgot you had it, it’s like finding a free $1200 right? It seems like a fair deal.

Full of confidence you pull the trigger and make the deal.

You get the deposit in your Paypal account and spend it to pay down some credit card debt. Sighhh. Life.

Not two weeks later you’re checking out the news on your favorite site and there’s a breaking news alert! OMG! Shaq tragically just passed away far too young. You can’t believe it and neither can anyone else. Memorials are held. Jerseys re-retired (and re-released), and memorabilia sales explode.

With baited breath you terrifyingly check the dealer’s website a few weeks later out of dread, and sure enough, there’s YOUR card, being resold by the dealer for over $13,000.

Gulp.

“Why did I sell that stupid thing! Ugh I knew I should have held onto it. I could have made so much money!” You feel pangs of regret, and have trouble relaxing for a day or two until you go to the gym a few times and play some video games to get it out of your system and let it go.

You have to stop watching all the Shaq memorial coverage. Too many bad memories about your card and what could have been (money).

So that’s regret. Regret aversion is simply the fear of this situation. It makes us doubt and  second guess ourselves. We try really hard to avoid these feelings of regret (that’s the aversion part). There many types of regret, and some types of regret are stronger than others.

A study done by Seiler, Seiler, Traub and Harrison called “Regret aversion and false reference points in residential real estate” tried to test for regret aversion. They did so with simple questions where subjects were asked to assess their regret on a scale of 1 to 9, with 1 being low, and 9 a high level of regret.

The hypothetical situation the subjects were given was that they “purchased” a home for $200k five years ago. Today it’s worth $300k. That’s great news, right? There were two conditions, with half the people in each.

The first condition is “omission”. In the “omission” condition the participants find out that two years ago they could have sold the house for $350k, but were not aware of the potential sale at the time.

The second condition is “commission”. In the “commission” condition they knew two years ago that they could have sold the house for $350k, but believed the price would keep going up and did not pull the trigger.

In both conditions they still made the same amount of money ($100k). Their happiness with the sale should be the same, right?

Well, overall, people in the “commission” condition who could have sold the house, but chose not to, had statistically significant higher levels of regret than those in the “omission” condition who were unaware of a potential sale (4.69 regret vs. 5.08 with knowledge).

The bottom line is that people feel more regret when they lost something but feel like they had the control to make a different decision.

To a certain extent this is part of the fear of loss which I will talk about a lot more. But fear of loss manifests in many different ways, and this is just one of them.

Even though the end result is the same, learning that we could have made more money, but that we messed up, made a mistake, and sold at the wrong time, feels worse.

If we had no control over the situation and did not know that we had the option to sell the house at a higher price, then we can shrug and say “It was fate. I’m not responsible; Jesus take the wheel.”

It’s an act of god and out of our hands, we never lost what we could never have achieved. But when we had it in our hands, but then lost it because of our own mistakes; that’s troubling.

When we mess up we feel regret aversion. The next time we have to make a decision, we don’t want to make any decision. We freeze because we’re scared of making the wrong choice. Of selling a week too soon, or a day too late.

Like everything else in the 100, this is one of those peculiarities that causes us humans to make decisions and choices that are not the most logical or predicted by a computer. It’s not a simple sum choice utility function. It’s complex weird primate brains.

So let’s talk real world implications.

You can drive action by stimulating people’s fear of loss. Businesses do this all the time (the deal ends in 4 hours! better buy now).

For example, if you want to make people more cautious about selling stocks, send them alerts about all the times they could have sold their stocks for more money, but now it’s worth less. This strategy might actually cause them to switch partners, so maybe it’s something to avoid, but it certainly would stimulate a fear of loss.

Giving people information, so they have the decision in their hands, and then mess it up, will stimulate more regret aversion.  It’s certainly a tool in your arsenal that you should consider using when needed.

Give it a try! Did you find any difference? This is an especially tricky one to test because it is so specific, and also occurs over a period of time. But it’s fascinating to discuss.

 

Seiler, M., Seiler, V., Traub, S., & Harrison, D. (2008). Regret aversion and false reference points in residential real estate. Journal of Real Estate Research, 30(4), 461–474.

365 Ways To Persuade And Motivate: #10 Pitch When People Feel Regret

Picture of woman with head in handsOf all the situations and feelings that motivate people to take action, regret is one of the most powerful. People don’t like to feel regret and will do a lot to avoid it. That’s not surprising, but you might be surprised to find out that the more opportunity people feel they have, the more regret they tend to feel about a situation. If people feel that they could have done something differently, the more regret they feel with their action or decision. If they feel that they had no choice in their decision or action, then they feel less regret.

Related to this is the idea of whether there is a clear corrective action that could have been taken. If people feel they had a choice, and if they feel they had a clear, corrective action, and yet they don’t take that action, that is when they feel the most regret.

For example, let’s say you’re choosing a restaurant for an upcoming special event. You have three great restaurants that are available on the date you want. You choose one of the three and negotiate the menu with the restaurant staff. At the last minute the restaurant calls and changes the menu you had planned. You resist initially, but eventually give up. You’re not at all happy with the food they provide during the event. You could have taken corrective action (insisted they stick with the menu), or picked a different restaurant to start with, or switched to one of the other restaurants. But you didn’t do any of those things. So you had opportunity and you had clear corrective actions. In this situation you’ll feel a lot of regret, dissatisfaction, and disappointment.

If there’s only one restaurant available on the date you want to hold the event, and it only offers one set of menu choices, then you have little choice. Even though you might rate the food as good or as bad as in the first example, you’ll feel less regret, less disappointment, and less dissatisfaction.

Regret Inspires Action — Because people don’t like feeling regret, and because they feel the most regret about things they can fix, regret is actually a motivator for action. If people feel regret, then that’s when they are highly likely to take action. And people will often take an action to avoid regret before it happens.

What do you think? Are you willing point out to people the likelihood that if they don’t take the action you want them to take, or buy the product NOW that you want them to buy that they will regret the action later? If you “play the regret” card you are more likely to get them to take an action. Are you willing to do that or does that seem too manipulative?

To learn more check out our 1 day seminar on The Science of Persuasion.