Buyer’s remorse is a powerful emotion. There are few things worse than the feeling you get a few days after being sold something when you suddenly realise you didn’t need it, that you didn’t really want it, that it doesn’t work or it won’t do what you were told it would do.

That’s why financial products — life insurance, I’m thinking of here — offer consumers a 14-day cooling off period. People make decisions under pressure that they later regret. People change their minds. It’s worse when you find, after the sale, that you’ve been lied to or misled.

There’s a fair bit of buyer’s remorse going on in the UK at the moment (well, at the time of writing, anyway) after they voted to leave the European Union. And while it’s never easy to tell exactly what is what in the aftermath of a seismic event like the Brexit vote, it seems like a fair few people possibly didn’t understand what they were voting for, didn’t vote and now wish they had, or wish they’d voted the other way.

There’s a thing in behavioural finance called “regret theory”, or sometimes “regret aversion theory”. Like all things in behavioural finance, it describes something we’re all familiar with, but does it in a very complicated way. I suppose it has to do that so that it can somehow be quantified and then measured.

Feel bad

In essence, it states that people feel bad when they discover an alternative course of action would have produced a better result. So they base the decision to do something — or indeed, to not do something — on avoiding the possibility of feeling sorry about it afterwards.

I don’t think you have to be a behavioural finance expert to know that, and clearly it doesn’t just apply to finance — it applies to all sorts of decisions in life.

Say you have a pet that is unwell and the vet prescribes a course of medication as a last roll of the dice. It’s a complex decision, with plenty of emotion tied up in it, but — like a client dealing with a financial planner — you have to take the expert’s advice and weigh the probabilities: it could improve his quality of life, or it could do the opposite.

What do you do? Choose to do nothing and the future is certain; choose to accept the medication and the future could go either way. So if it seems to you like there’s a 100 per cent probability of the outcome being bad versus a roughly 50/50 chance of it being bad, there’s really no choice.

The decision is to reduce the possibility of regret by taking the path you think improves the odds. Except when it turns out badly, you regret the decision anyway, and there’sno cooling off period — it’s done.

There’s no cooling-off period in a referendum either, but some people(and estimates vary from 500,000 to three million) want to have a second go at it in the hope of achieving a different result.

Too bad, I suppose. That’s life. And death.

Dixon Bainbridge may be contacted by email only since his phone was disconnected - and it's best to try in the mornings. The views expressed in this column are not necessarily those of Professional Planner, and not even necessarily grounded in reality, to be frank.
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