Ever hesitated before selling shares, worried you’ll miss out if the price soars tomorrow? Or bought into a hot property market, fearing you’ll regret not getting in sooner? Welcome to the world of regret theory—a powerful behavioural bias that’s steering more Australian financial decisions than you might realise in 2025.
What is Regret Theory? The Psychology Behind the Dollars
Regret theory is a concept from behavioural economics that describes how people make choices not just based on outcomes, but also on the potential for future regret. Instead of purely weighing risks and rewards, many of us ask: “If I choose wrong, how much will I beat myself up about it later?”
This mindset is especially potent in today’s rapid-fire financial world, where FOMO (fear of missing out) is turbocharged by 24/7 news and social media. Whether it’s the latest ASX tech stock, a surging suburb in Melbourne, or even a crypto token trending on TikTok, regret theory is quietly at work every time you second-guess yourself or copy what others are doing.
- Investment decisions: Australians often hold onto losing stocks too long, or chase rising ones, driven by the fear of making a regrettable mistake.
- Superannuation switches: After market downturns, regret-averse members sometimes lock in losses by shifting to cash, only to miss the rebound.
- Property purchases: The fear of “what if prices double next year?” can push buyers to overextend, despite signs of cooling markets.
Regret Theory in 2025: Real-World Examples and Policy Shifts
The Australian financial landscape is shifting fast in 2025, with new policy updates and market volatility amplifying regret-driven behaviour:
- Super fund transparency: The government’s 2025 reforms require clearer reporting of fund performance. While intended to empower consumers, it’s also increasing the temptation to switch funds in pursuit of last year’s winners—classic regret avoidance, often at the cost of long-term returns.
- Buy Now, Pay Later (BNPL) regulation: The new ASIC rules have tightened BNPL lending, but FOMO-fuelled spending is still rampant. Many Aussies feel compelled to splurge on sales or limited-edition drops, fearing regret if they miss out—even as cost-of-living pressures rise.
- Property market nerves: As interest rates stabilise and the RBA signals no cuts before late 2025, buyers are torn between waiting for better deals and diving in now to avoid missing out. This tension is classic regret theory at work.
Consider this: In a 2025 survey by the Australian Financial Behaviour Institute, over 60% of respondents admitted to making at least one significant financial decision in the past year based on “fear of future regret” rather than a clear plan or professional advice.
How to Outsmart Regret and Make Better Money Moves
Recognising regret theory’s influence is the first step to making smarter choices. Here’s how Australians can counteract this bias in 2025:
- Set clear goals: Write down what you want to achieve financially—whether it’s buying a home, retiring early, or building an emergency fund. Use these goals as your North Star, not the latest market hype.
- Automate good habits: Automatic investment plans and regular super contributions reduce the temptation to time the market or chase trends.
- Reflect before acting: Before any big financial decision, pause and ask: “Am I worried about missing out, or is this really the best move for me?”
- Embrace long-term thinking: History shows that markets (and property values) rise and fall, but patience often pays off. Don’t let short-term regret drive long-term mistakes.
- Celebrate wins, learn from losses: Everyone has regrets, but the savviest Aussies treat them as lessons, not a reason to panic or copy the crowd.
Conclusion: Regret Theory Is Real—But It Doesn’t Have to Rule You
Regret theory is a powerful force in the minds of Australian investors, homebuyers, and everyday savers—especially in 2025’s fast-changing economy. By understanding how the fear of future disappointment shapes your choices, you can step back, set your own agenda, and make decisions you’ll actually feel good about a year from now.
