I read rather a disquieting story this week about an elderly woman whose strong feelings of regret for having gone out to work while her daughters were growing up had caused in her a kind of mental seizure.

Despite her daughters' assurances that the example she had set them by her industry had been a positive force, she was unable to shake the notion that she had been responsible for diminishing their lives. If affected her to such an extent that she was prevented from taking proper care of herself.

Psychiatrists say that especially after middle age, regret can become a very powerful factor in the way people think about themselves. And obsessing about decisions that seem, on reflection, to have turned out the wrong way, can turn people against themselves.

But is that a common experience? Ought we to shun regret?

We associate the emotion with sadness and loss, as a Canadian poet, Patricia Young, powerfully suggests in her poem, Ruin and Beauty:

…Should we name this failure?

Should we wake to the regret at the end of time

doing what people have always done

and say it was not enough?

The New Zealand writer, Katherine Mansfield, is known for having said: "Make it a rule of life never to regret and never to look back. Regret is an appalling waste of energy; you can't build on it; it's only for wallowing in."

Although she was a wonderful writer, science suggests she is wrong. Regret, say the boffins, has more to do with reasoning and planning than with sadness, and regretting things is not a waste of energy, but a valuable, and very human, exercise.

The magazine Science published an article by several researchers back in May, with the intimidating title of The Involvement of the Orbitofrontal Cortex in the Experience of Regret.

Regret goes on in that particular area of the brain - in the front of the head, above and behind the eyes, I think - the same place where figuring things out and planning go on. In the study, the researchers found that if the brain was damaged there, the result was "poor social and individual decision-making skills and abnormal anticipatory emotional responses".

They established that this area of the brain is the interface of emotion and cognition - the home of a uniquely (it's thought) human ability called counterfactual reasoning.

This is the ability to run "what if" experiments in our minds, which play a crucial role in evaluating actions that we are considering taking, or not taking - whether to buy a car, for example, or a bike, or use the bus, or the ferry.

Scientists speculate (but I accept as read, because it seems too obvious not to) that the ability to think counterfactually was crucial to the survival of early humans, allowing them to plan ahead in, for example, hunting animals for food.

Counterfactual reasoning is triggered by regret, in the sense that we don't enjoy regretting things, and want to avoid doing something that will cause us regret in the future. It is a critical skill for modern humans, because it is the key to our ability to manage risk. 'What if' experiments allow us, each in our fashion, to evaluate the degree of risk in each of a number of possible alternatives, and, therefore, to opt for the one that involves the degree of risk with which we feel most comfortable in the circumstances.

Another experiment published in May, this one in Psychological Science, which is the journal of the American Psychological Society, tested the premise that people often expect to feel more regret when they "nearly succeed" (miss an airplane by a minute) than when they "clearly fail" (miss a flight by an hour) because they believe they will blame themselves more in the former than the latter instance. In fact, the experiment demonstrated, people feel about the same regret in both instances, and commonly less of it than they expected, which suggests that we are good at finding ways of avoiding self-blame.

None of this is news to people in business, especially in the investment business, where Regret Theory and Prospect Theory have been used for yonks to explain why investors do the irrational things they do.

Regret Theory suggests that investors avoid selling stocks that have dropped in value, in order to avoid suffering the regret of having made a bad investment. Fear of the embarrassment of having to report the loss to others may also contribute to this tendency not to sell losing investments.

It's theorised that investors follow the crowd and conventional wisdom in order to avoid the possibility of feeling regret in the event their decisions prove to be incorrect.

Thus, many investors find it easier to buy a popular stock and, if it goes down, to rationalise the loss as understandable, since so many other people owned it and thought highly of it. Buying a stock with a poor image is harder to rationalise if it goes down. As a corollary, many people believe that money managers and advisors tend to favour well-known, popular companies because they are less likely to be disciplined if this kind of company under-performs.

In Prospect Theory, it works like this: People take more risks to avoid losses than they do to try to realise gains.

People who own a losing stock tell themselves that the price will bounce back, and when it does, they will be able to make up their losses. They are prepared to increase their risk by holding on to a losing stock because the desire to avoid suffering a loss is so strong that it overrides their ability to judge risk. Investors set a higher price on something they own, in other words, than they would normally be prepared to pay in the market.

A corollary to the loss aversion theory is that investors choose to hold their losers and sell their winners because they believe it is inevitable that today's losers will soon outperform today's winners. They make the mistake of chasing the action by investing in stocks or funds that receive the most attention. In support of this notion, research shows that money flows more rapidly into mutual funds that have performed extremely well than flows out of funds that have performed poorly.

Regret, then, is a valuable life skill, but such a powerfully unpleasant experience that it has the power to make fools of otherwise sensible people.

It would never make a fool out of Edward Lear. Relief, said that valuable gentleman, is to be found in the consumption of apple tart:

There was an old person of Pett,

Who was partly consumed by regret;

He sate in a cart,

And ate cold apple tart,

Which relieved that old person of Pett.

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