Regret Theory: Japanese Consumers on Electric Cars

Regret theory is the difference between the actual payoff and the payoff that would have been obtained if a different course of action had been chosen (Wikipedia.org) 

In short, regret over a decision made (opportunity loss)

A McKinsey Quarterly research reveals that many electric car buyers in Japan feel remorse or were disappointed over their decision to acquire electric cars:

If electric vehicles (EVs) are to develop from a niche into a mass market, carmakers should learn from early adopters who say they may not buy one again. Our recent research on such consumers in Japan finds that about one-third of them fall into this category. These buyers said they were “seduced” by low energy costs, attractive subsidies, and a good test drive. But they were less well informed about EVs than were environmentally conscious “green enthusiasts” (who love EV technology for its low energy costs and comfortable driving experience) and became less enthusiastic about their purchase when they faced issues such as higher electric bills and locating places to charge their cars.

Japan’s government heavily promotes electric cars through subsidizes and or through tax discounts.

Yet the study exhibits how the stereotyped politically induced projects hardly meets the taste of the consumers, which is the critical reason for their failures.

As the great Austrian economist Ludwig von Mises explained 

The real bosses, in the capitalist system of market economy, are the consumers. They, by their buying and by their abstention from buying, decide who should own the capital and run the plants. They determine what should be produced and in what quantity and quality. Their attitudes result either in profit or in loss for the enterpriser. They make poor men rich and rich men poor. They are no easy bosses. They are full of whims and fancies, changeable and unpredictable. They do not care a whit for past merit. As soon as something is offered to them that they like better or that is cheaper, they desert their old  purveyors. With them nothing counts more than their own satisfaction. They bother neither about the vested interests of capitalists nor about the fate of the workers who lose their jobs if as consumers they no longer buy what they used to buy.

Of course as I earlier posted, electric cars aren’t exactly "green" or environmental friendly as environmental zealots allege or want the public to believe.

Jessica Hagy's Indexed On The Regret Theory

Jessica Hagy makes a great diagram illustrating the Regret Theory in her Wish you had, or wish you hadn’t? post.

Regret theory as defined by investopedia.com is ``A theory that says people anticipate regret if they make a wrong choice, and take this anticipation into consideration when making decisions. Fear of regret can play a large role in dissuading or motivating someone to do something."

How does this apply to investing? Dr. John Hussman has a befitting explanation,

``Anytime you discover you are taking too much risk, realize in advance that you will experience some level of regret as you correct it, if you sell your first portion and the market advances, you'll regret having sold anything. If you sell your first portion and the market continues to decline, you'll regret that you didn't sell everything. The way to keep from being "paralyzed" in the financial markets is to realize in advance that gradually changing an investment position will always involve regret. It is better to "lock in" an acceptable level of regret than to risk an unacceptable loss."