Psychology of stock ups and downs: Regret Theory

Regret Theory, also known as Regret Theory (Regret Theory)
Four major research achievements in finance: Regret Theory, Prospect Theory, overreaction theory, and over-confidence theory ).
What is Regret Theory?
Sorry, I think that I personally assess his expected response to future events or situations. Bell (Bell, 1982) Describe regret as an emotion generated by comparing the result or status of a given event with the state to be selected. For example, when choosing between a familiar brand and an unfamiliar brand, consumers may consider choosing a brand that is less effective than choosing a familiar brand. Therefore, consumers seldom choose unfamiliar brands.
Content of Regret Theory
Regret theory can be applied in the field of investor psychology in the stock market. Whether or not investors intend to purchase declining or rising stocks or funds, buying their own securities will actually generate an emotional reaction. Investors may shy away from selling stocks with falling prices, which is an embarrassment of avoiding previous bad decisions and reporting losses. When the choices fail to meet the expected results or the results are inferior to other choices, the regret of making wrong decisions is born. Therefore, even if the decision results are the same, if a decision-making method can reduce the regret, for investors, this decision-making method is still better than other decision-making methods.
In essence, investors have a herd mentality. To avoid the regret of making wrong decisions, investors may refuse to sell stocks whose prices have fallen. When investors consider that a large number of investors suffer losses on the same investment, they may reduce their emotional reactions or feelings. Therefore, investors find that it is easy to follow the herd mentality to buy stocks that are popular this week or that are pursued by everyone, resulting in the stock market's "herd effect.
In addition, investors often experience a psychological state of regret in the investment process. In the context of a large bull market, you will regret failing to promptly intervene in your desired shares, or selling profitable stocks too early. In the context of a bear market, you will regret failing to stop or exit in time, if a small profit fails to be realized, it will be regretted when it is locked. In the balanced market, the stock held by the company will not rise or fall, and the stock recommended by others will rise, I will regret changing stocks in time because I did not follow others' advice. Now I am determined to sell stocks that do not go up in my hands. The stocks recommended by buyers and experts are found to keep rising, when the stocks recommended by experts do not rise or fall, they are even more regretful. Professor Meir Statman from Santa Clara University is an expert studying "fear of regret" behavior. People often make mistakes in investment judgment and decision-making, and often feel very sad and sad when such mistakes occur. Therefore, in the investment process, investors often show a kind of indecisive personality to avoid regret. When deciding whether to sell a stock, investors are often affected by the buyer's high or low cost than the current price. They are afraid of regret and try to avoid regret.
Some researchers believe that investors are reluctant to sell down stocks to avoid the pain and regret of a failed investment, the embarrassment of reporting investment losses to others also makes it reluctant to sell the stocks that have been lost. Other researchers believe that herding behavior and follow-up knowledge of investors are to avoid regret for making a wrong investment decision. Many investors think that it is easier to buy a stock that everyone is optimistic about, because everyone is optimistic about it and has bought it, even if the share price falls. Everyone is wrong, so I am wrong! If the buyer buys a stock with a poor market image and then falls, it is difficult for him to reasonably explain why he bought it. In addition, fund managers and stock ratings like well-known listed company shares, mainly because they are less likely to be dismissed due to poor operations if these shares fall. Fear of regret also reflects investors' expectations for themselves.
Hersh Shefrin and Meir Statman found that, in addition to avoiding regret in the investment process, investors also have a motivation to pursue pride. Fear of regret and the pursuit of pride have led investors to hold profitable stocks for a short period of time, while holding lost stocks for a long time. They call this phenomenon a selling effect. They found that when an investor holds two shares, stock a gains 20, and stock B loses 20%, there is a new investment opportunity, and investors have no other money, when a stock needs to be sold first, most investors often sell stock a instead of stock B. Because selling stock B will regret the previous buyer's decision, selling stock a will give investors a sense of pride in making the right investments.