Regret risk

1.

When hedging an exposure, the risk of being locked in at an unfavourable hedged rate, and suffering an opportunity loss.

2.

The term 'regret risk' is also used more broadly, to include the possibility of later financial regret at not making an operational or financial commitment, in addition to the narrower definition in 1. above.

For example, a decision to leave a financial exposure unhedged, which may turn out with hindsight not to have been the best decision.

The potential for regret, in this wider sense, is the inevitable consequence of any decision either to act or not to act. With the benefit of hindsight, any decision taken may turn out to have been sub-optimal.

Misunderstanding about this important point may lead to analysis paralysis.

See also

• Analysis paralysis
• Hindsight bias
• Opportunity loss