Sunday, June 5, 2011

Regret Aversion.


Who do you think feels worse, Ramu or Shamu


Scenario 1
Ramu owns 100000 INR worth of stock in Reliance. A trusted friend suggests that Ramu sell it and buy 100000 of TCS stock. Ramu does not sell, and over the next year Reliance share price drops 30%, turning his 100000 INR holding into a 70000 INR investment

Scenario 2
Shamu owns, 100000 INR worth of TCS stock. During the same period, a trusted friend suggests that he sell his shares and buy 100000 INR worth of Reliance. he does this,and over the next year Reliance share price drops 30%, turning Shamus 100000 INR investment into a 70000 INR investment stake in Reliance.

Who do you think feels worse, Ramu or Shamu

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