Error of commission

Regret has two shapes. One is regret over something you did. The other is regret over something you could have done, but didn't.

The workbook calls the first an error of commission and the second an error of omission. People, on average, feel an error of commission far more sharply. Losing money because you actively bought a falling stock stings more than losing the same amount because you passively held on to one you already owned. That asymmetry is not just a curiosity — it is the reason many investors freeze up and do nothing at all, even when doing nothing is itself a decision.

Section 14.3.1 places this inside the discussion of status quo bias, which happens when an investor, worried about regret, ends up taking no decision at all. Regret is split into two dimensions: actions that people take (error of commission) and actions that people could have taken (error of omission). The workbook states plainly: "regret is more intense due to error of commission than omissions, and hence people prefer the status quo."

This is closely linked to regret aversion bias, where people avoid decisions that could result in an action turning out badly, precisely because an active, wrong decision generates more regret than a passive, wrong one. The workbook also notes that complexity of understanding or execution can push an investor toward the status quo independently of regret — and that a simple nudge (citing Richard Thaler's work on pension-plan enrolment) can overcome status quo bias that exists purely because of this asymmetry.

Illustrative, following the workbook's framing. Two investors each hold a stock that falls 20%, a loss of Rs 2,00,000 on a Rs 10,00,000 holding for each of them.

Mr Sinha actively bought more of the stock on the way down, believing it was cheap — an error of commission. He feels intense regret: he made an active choice that lost money.

Ms Bhalla already held the stock, considered selling before the fall but decided to "wait and watch," and did nothing — an error of omission. Her loss is identical in rupees, but the workbook's point is that she feels less regret, because she never made an active call that can be pointed to as the cause.

The asymmetry explains why, faced with a similar decision next quarter, both investors are more likely to do nothing than to act — Mr Sinha because acting hurt him once, and Ms Bhalla because inaction never seems to hurt as much.

Chapter 14, section 14.3.1, defines error of commission and error of omission inside the status quo bias discussion, and links the asymmetry to the popularity of nudges in fixing poor enrolment or participation rates. Expect a question distinguishing the two error types from a described scenario, or one linking the asymmetry to why status quo bias persists.

• Error of commission is about an action taken; error of omission is about an action not taken — reversing the two definitions is the most common mistake.
• The workbook states commission hurts more than omission, not the reverse — this asymmetry, not the errors themselves, is what causes status quo bias.
• Status quo bias is the behaviour; error of commission/omission is the underlying psychology that produces it — do not treat the three as unrelated concepts.
• A nudge (Thaler's pension example) works by removing the need for an active decision, converting what would have been an error-of-commission-risk into a default outcome — it does not change the underlying regret asymmetry, it routes around it.