The portfolio is underperforming. The analysis supports exit. But pulling the trigger feels worse than continuing to hold—even though continuing to hold is also a choice with consequences.
This is omission bias: the asymmetric way we experience regret depending on whether a bad outcome came from action or inaction.
The Asymmetry
Psychologists Jonathan Baron and Ilana Ritov documented the pattern: people feel more regret about bad outcomes caused by action (commission) than bad outcomes caused by inaction (omission). The same result feels different depending on whether you "did something" to cause it.
- Commission error: "I took action and it went wrong." This feels blameworthy.
- Omission error: "I didn't act and things went wrong." This feels forgivable.
Exiting a position is an action. Continuing to hold feels passive. So omission bias systematically tilts against exits, even when the expected value of exiting exceeds the expected value of holding.
Holding is also a decision. Every day you stay, you're actively choosing to allocate resources to that position.
The fact that it feels passive doesn't make it passive.
The Accountability Premium
Part of what drives omission bias is accountability asymmetry:
- If you exit and the position would have recovered, the failure is visibly yours
- If you hold and it continues declining, you share blame with circumstances
This creates perverse incentives. From a reputation standpoint, the safest move is often the least strategic one. You're optimising for blame-avoidance rather than expected value.
An investment committee considers selling a declining position. The analysis suggests sell. But the discussion centers on: "What if we sell and it recovers?"
The parallel question—"What if we hold and it continues declining?"—receives less airtime. Why? Because the hold scenario distributes blame across circumstances, while the sell scenario concentrates it on the decision-makers.
Result: the committee holds, not because the analysis supports it, but because holding is the lower-accountability option.
The Regret Tax
Think of omission bias as a tax you pay to avoid feeling responsible. Every quarter you hold a position you know should be exited, you're paying the regret tax—accepting ongoing costs to insure against the sharper pain of making a call that turns out wrong.
The tax is invisible because it accrues slowly. You don't experience it the way you'd experience the sting of an exit that looked bad in retrospect. But over time, the accumulated tax can exceed what you'd have lost by taking action.
"Inaction isn't safety. It's just slower failure with better distributed blame."
Neutralising Omission Bias
1. Forced Choice Reframe
Omission bias lives in the phrase "we're not deciding yet." Force a choice:
"If we had to decide today—stay or exit—which would we choose and why?"
Then ask: "What are we getting from deferring the decision?" (Usually: insulation from accountability.)
2. Symmetric Scenario Analysis
Make both error types equally visible:
- If we exit: best case, worst case, regret scenarios
- If we hold: best case, worst case, regret scenarios
If you can generate many regrets for exiting and few for holding, you're likely not doing the holding side honestly.
3. Precommitment Rules
States and dates remove the decision from the moment when omission bias is strongest. The trigger fires, the action executes—you don't have to decide again in the moment of highest cognitive contamination.
Holding Is Choosing
The deepest countermeasure is conceptual: recognise that holding is an active choice with real opportunity costs.
Every dollar (and hour, and unit of attention) allocated to a declining position is a dollar not allocated to something better. The question isn't "should we do something (scary) or do nothing (safe)?" The question is "given current information, which allocation maximises expected value?"
That reframe converts the decision from "act vs don't act" into "allocate here vs allocate there"—and in that frame, omission bias loses much of its grip.
The Deeper Pattern
Omission bias is part of a broader pattern: we often optimise for how decisions feel rather than how they perform. Status quo bias makes the current state feel like the default. Identity fusion makes exits feel like self-erasure. Omission bias makes action feel riskier than inaction.
All of these point in the same direction: against exits, toward continued commitment to positions that may no longer warrant it.
The antidote isn't to eliminate these biases—that's probably impossible. The antidote is to build structures that counteract them: precommitment rules, external review, accountability redesign, forced-choice reframes.
Previous: The Trusted Advisor: Getting Honest Feedback
Next: The Goals Trap: When Targets Become Traps
This article is for educational purposes and does not constitute business or investment advice. Strategic decisions should be made with appropriate professional counsel.