Damned If You Do, Damned If You Don’t: How Counterfactuals Shape Early-Stage Investment Decision-Making

Abstract

This study explores the role of investors’ counterfactual thinking regarding errors of commission and omission and how these relate to willingness to invest in new ventures. Drawing from behavioral economics and psychology, we focus on the salience of prospective counterfactuals at the screening stage. Our experimental findings demonstrate that increasing the salience of commission-related counterfactuals, particularly social counterfactuals, significantly reduces investors’ willingness to invest. This effect underscores the influence of anticipated regret, social comparison, and emotional responses in shaping investment behavior. By contrast, omission-related counterfactuals show no measurable impact, suggesting a prevailing not-investing norm and limited effect of potential fear of missing out among new-venture investors. Our results provide a deeper understanding of how investors navigate the tension between avoiding missed opportunities and minimizing losses, emphasizing the salience of situational triggers as opposed to stable traits or market-wide factors. These insights highlight the importance of counterfactual thinking as a theoretical lens for studying decision-making in the high-risk, high-reward context of new-venture investing.