Regret theory refers to human behavior regarding fear of regret, which arises from people anticipating regret if they make the wrong choice.
This fear can affect a person’s rational behavior, impairing his ability to make decisions that will benefit him, rather than those that will harm him.
The theory of regret affects investors because it can either make them unnecessarily risk averse or motivate them to take risks they shouldn’t.
During extended bull markets, the theory of regret leads some investors to keep investing heavily, ignoring the signs of an impending crash.
By automating the investment process, investors can reduce their fear of regret for making poor investment decisions.
An overreaction in the financial markets is when securities become overbought or oversold for psychological reasons rather than for fundamental reasons.
Risk acceptance or risk containment is a conscious strategy of recognizing the possibility of small or rare risks without taking measures to hedge, hedge or avoid these risks.
Animal spirits come from the Latin spiritus animalis: “breath that awakens the human mind.” It was introduced by the British economist John Maynard Keynes in 1936.
Arbitrageurs are investors who exploit market inefficiencies of any kind. They are necessary to ensure that inefficiencies between markets are smoothed out or kept to a minimum.
Asset-Backed Securities (ABS) are financial securities backed by income-producing assets such as credit card receivables, home equity loans, student loans, and auto loans.
Audit risk is the risk that the financial statements will be materially incorrect, even if the auditor’s report indicates that the financial statements do not contain any material misstatement.