Fortunately, Danny Kahneman did not avoid the risky business of offering controversial perspectives on the way decisions are made. Certainly, the role played by Amos Tversky in Kahneman’s life and work made a big difference and enabled Kahneman to accompany Tversky in challenging traditional economic models by introducing psychological concepts (and subsequently winning the Nobel Prize in Economics, even though they were both psychologists).
I turn now specifically to Kahneman’s perspectives of Regret that he offered in Thinking Fast and Slow (Kahneman, 2011). He approaches the matter of Regret by first considering the powerful motive involved in decisions being made on the basis of “sunk costs” (the money already put into some enterprise). As Kahneman and many other psychologists and economists have noted, we are all too often, and unwisely, driven by a desire to recover these costs, even if this means losing additional money in seeking to “recover” these costs. As Kahneman notes (2011, p. 346), “sunk costs” is:
“. . . perhaps best served by gambling further with the organization’s resources, in the hope of recouping the original investment—or at least in an attempt to postpone the day of reckoning. In the presence of sunk costs, the manager’s incentives are misaligned with the objectives of the firm and its shareholders, a familiar type of what is known as the agency problem. Boards of directors are well aware of these conflicts and often replace a CEO who is encumbered by prior decisions and reluctant to cut losses. The members of the board do not necessarily believe that the new CEO is more competent than the one she replaces. They do know that she does not carry the same mental accounts and is therefore better able to ignore the sunk costs of past investments in evaluating current opportunities.
The sunk-cost fallacy keeps people for too long in poor jobs, unhappy marriages, and unpromising research projects. I have often observed young scientists struggling to salvage a doomed project when they would be better advised to drop it and start a new one. Fortunately, research suggests at least in some contexts the fallacy can be overcome. The sunk-cost is identified and taught as a mistake in both economics and business courses, apparently to good effect: there is evidence that graduate students in these fields are more willing than others to walk away from a failing project
REGRET
Regret is an emotion, and it is also a punishment that we administer to ourselves. The fear of regret is a factor in many of the decisions that people make (“Don’t do this, you will regret it” is a common warning), and the actual experience of regret is familiar. Toe emotional state has been well described by two Dutch psychologists, who noted that regret is “accompanied” by feelings that one should have known better, by a sinking feeling, – thoughts about the mistake one has made and the opportunities lost, bf tendency to kick oneself and to correct one’s mistake, and by wanting • undo the event and to get a second chance.” Intense regret is what you experience when you can most easily imagine yourself doing something than what you did.”
What are these sinking feelings about? Do they represent something about the hole created by lost opportunity or inappropriate actions? Are negative utilities wrapped up in these sinking feelings?
