The “disposition effect” - Deepstash

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A fear of regret can lock us into bad relationships, jobs and habits - here's how to break free

The “disposition effect”

It's a bias related to money and it describes how investors hold on tight to losing assets. The driving force behind this behavior is our fear of regret.

It shows we are very hesitant to sell an asset at a loss and we tend to hang on to it as it keeps dropping in value, hoping it will pick up again.

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The disease of "What if"

It’s human nature to linger on feelings of regret. We look back and think that missed opportunities(real or not) could have set us on a different, possibly more rewarding path. Unchecked, th...

Turn regret into motivation
  • Acknowledge how you cope with regret: ignoring it makes it more present
  • Stop the regrets spiral, until you are ready to face the situation with more clarity
  • Revisit the story and identify practical lessons you can learn from it
  • Treat yourself like your ideal mentor would
  • Ask yourself why you feel regret and work backward to identify the values that are tied up in your feelings
  • The cure for anticipating regret isn’t feeling lousy or overthinking, but pursuing solutions, using the wisdom gained through self-reflection.
Turn regret into motivation
  1. Acknowledge how you cope with regret: ignoring it makes it more present;
  2. Stop the regrets spiral, until you are ready to face the situation with more clarity;
  3. Revisit the story and identify practical lessons you can learn from it;
  4. Ask yourself why you feel regret and work backward to identify the values that are tied up in your feelings;
  5. The cure for anticipating regret isn’t feeling lousy or overthinking, but pursuing solutions, using the wisdom gained through self-reflection.
Status quo bias
Status quo bias

Status quo bias is when we prefer that our environment and situation should remain unchanged.

The bias has the most impact in the area of decision-making, as we tend to pre...

Common Explanations for Status Quo Bias

These explanations are all irrational for preferring the status quo:

  • Loss Aversion: When we make decisions, we weigh the potential for loss more heavily than the potential for gain.
  • Sunk Costs: We continue to invest resources like time, money, or effort into a specific endeavor just because we are already invested, not because it is the best choice.
  • Cognitive Dissonance: In decision-making, we an option as more valuable once we have chosen it. Considering an alternative can cause cognitive dissonance.
  • Mere Exposure Effect: It states that people prefer something they've been exposed to before.
  • Rationality vs. Irrationality: We may choose to keep our current situation because of the potential transition cost of switching to an alternative. It becomes irrational when we ignore choices that can improve a situation because we want to maintain the status quo.
Status Quo Bias examples
  • When offered several sandwich options, individuals often choose a sandwich they have eaten before.
  • In 1985, Coca Cola reformulated the original Coke flavor and started selling a "New Coke." Although blind taste tests found many consumers preferred New Coke, consumers continued to buy Coke Classic. New Coke was discontinued in 1992.
  • In political elections, the current candidate is more likely to win than the challenger.
What we regret

The regrets that bother us the most involve failing to live up to our “ideal selves.” 

We’re not as bothered by the mistakes we’ve made or the things we ought to have done as w...

The theory of the 3 selves
  • The actual self is what a person believes to be now, based on current attributes and abilities. 
  • The ideal self is comprised of the attributes and abilities a person would like to possess one day— goals, hopes, and aspirations. 
  • The ought self is who someone believes they should have been according to their obligations and responsibilities.
Regretting what we don't do

People regret their inactions more than their actions in the long term.

  • A mistake makes you feel a great deal of regret, but you get over it quickly because you most likely can fix it.
  • You can’t fix what was never done in the first place. Inaction, the utter lack of trying, is what will truly haunt you.