Why are young investors more afraid of regret than of actual losses?

Against a backdrop of growing anxiety in global markets, with government bond yields and oil prices rising at the same time and geopolitical tensions mounting, investors are increasingly making decisions under the influence of their emotions. They may consider not only prospective returns but also how their decisions will make them feel later. For young investors, the word “may” can be dropped altogether, according to a September study by Pratigya Pokharel and Rajan Bilas Bajracharya. The researchers found that the stronger an investor’s regret aversion, the stronger their loss aversion. Oninvest looked at why this happens and how investors can keep fear of an unpleasant emotion from controlling their portfolios.

Pokharel and Bajracharya analyzed responses from 222 young investors ages 18-35 who actively trade on the Nepal Stock Exchange. They examined four behavioral factors and their relationship with loss aversion. Regression analysis found regret aversion, the tendency to avoid decisions that could cause regret, to be the strongest statistically significant predictor. Herding behavior was the second significant predictor, whereas availability bias and mental accounting did not have statistically significant direct effects.

In other words, the study found that the stronger a young investor’s regret aversion, the greater their loss aversion. In practice, young investors may be deterred from selling loss-making assets not only by the pain of crystallizing a financial loss but also by the fear that they will regret the decision. Put more simply, young investors fear unpleasant emotions more than losses.

Regret is a distinctive emotion: to experience it, a person must compare what happened with what might have happened had they made a different decision. That is why regret is closely associated with “if only” thoughts. This is known as counterfactual thinking. Research on regret shows that its intensity depends not only on the outcome of a decision but also on how easily a person can imagine a better alternative.

Regret also involves an element of self-blame, which may take the form of “I made the wrong choice” or outright self-reproach. As a result, people begin making decisions not only with financial considerations in mind but also based on the emotional outcome they expect.

Research has shown that expecting to learn what happened to a rejected alternative can change people’s decisions. In experiments, including those involving investment decisions, participants made different choices when they knew they would learn the outcome of the option they passed up. In other words, an investor may be deeply concerned not only with “How much will I lose?” but also “How will I feel when I find out how much I could have made?”

The brain sees the situation roughly as follows: closing out a loss-making position makes the decision final and its outcome visible. As long as the asset remains in the portfolio, however, the story is not over. It still has a chance to turn around, in which case the decision may not look so bad after all. This imagined scenario preserves a sense of uncertainty and possibility, meaning that holding the position can serve an emotional function by postponing the conclusion of an unpleasant story.

This is where the mechanisms of regret intersect with the so-called disposition effect, a well-known concept in behavioral finance. It is the tendency to sell winning securities too early and hold losing ones for too long. As early as 1985, Hersh Shefrin and Meir Statman proposed that regret aversion could be one of the mechanisms behind the effect. Barbara Summers and Darren Duxbury later reached a similar conclusion.

Intriguingly, experiments in other research found that participants were sometimes willing to forgo a material benefit to reduce the likelihood of future regret. Under certain conditions, in other words, preventing an unpleasant emotion itself becomes part of a decision’s value.

Research suggests that the influence of negative emotions, including regret, weakens with age. In a study of younger and older adults that specifically examined regret, the older participants were less sensitive to regret-inducing outcomes. Yet they remained just as capable of using anticipated regret to guide subsequent decisions. In other words, they could account for the possibility of regret, but the emotion itself was less intense. This suggests that a weaker emotion may also have had less influence on their decisions.

A 2026 study found that people report fewer recent regrets as they age and feel less anger and frustration when recalling mistakes from long ago. The study authors stressed, however, that some differences in how emotions are experienced may reflect generational differences rather than aging itself.

That is, fear of regret may have an especially strong influence on how young investors experience losses. The fear of future regret may become less acute with age. For a young investor, the problem is more likely to center on the emotion “I do not want to regret selling,” while a more mature investor may focus more on analysis, calculations, and rational considerations: “I can no longer afford to take this risk.”

One psychological technique may help: make investment decisions in advance, before emotions take hold. Before entering a trade, investors should write down why they are buying or selling the asset, which factors would prompt them to reconsider their original thesis, and under what conditions the position should be closed. Then, if the price falls, they will not have to decide what to do all over again in a panic, as they will already have an “if/then” rule in place. Research on group investment decisions found that such plans reduced the tendency to keep investing in a project after receiving negative feedback.

A second approach is to evaluate the quality of the decision itself rather than how the trade or sale feels. Investors can ask themselves: “If I did not already own this investment, would I buy it at the current price?” This technique shifts the focus from regret about the past to the asset’s prospects. The answer can then be assessed against the same type of “if/then” rule.

The three main principles for keeping regret from driving investment decisions are having a plan, diversifying, and avoiding impulsive moves during periods of volatility.