"I am holding a large position in Omega Corporation with a large unrealized loss. Omega’s stock price declined last year when reported sales and earnings failed to meet analyst expectations. I took advantage of the decline to increase my position. Omega sales growth has continued to slow over the last year, but I believe the stock is still a good investment.”
Were there choices of biases in the question format? Could be regret avoidance because of the fear of missing out on the increase once the stock turns around, but i still think it’s heavy on loss aversion by increasing his position.
Looks like a little of both loss aversion and regret aversion. The first part points to loss aversion (holding onto loses abd buying more) but the 2nd part points to regret (regretting that if he doesnt double down and the stock rises back in value, he would be kicking himself)
If you increased your position when prices fell it is not loss aversion. With loss aversion you would just hold it and hope it reverts back.
I would have gone with regret aversion. Regret aversion usually gets you to do something (afraid that if you don’t do you are left out from a big gain) while i loss aversion you don’t do anything just wait.
Loss Aversion : No. Because the investor is constantly buying at every dip. Loss Aversion will dictate holding not adding position
Regret Aversion : Most certainly not. Regret Aversion is stemmed from the fear of therory of commission vs. therory of omission. Either one will manifest. In case the whole market we’re buying at dip the investor will follow the suit and not take CONTRARY action. Herding behavior. Else, he would do nothing and sit tight for the fear of losing when the stock rises.