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When choosing is painful: Anticipated regret and psychological opportunity cost

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  • Gabillon, Emmanuelle

Abstract

This paper is a contribution to regret theory, which we generalize in two ways. Since the intensity of regret depends on the information the decision maker has about the results of the foregone strategies (feedback), a regret theory of choice is proposed which accommodates any feedback structure. We also show that the reference point in the regret utility function introduced by Quiggin (1994), does not systematically denote the impact of anticipated regret on utility. It can also embody the effect of another negative feeling related to the act of choosing, which we call Psychological Opportunity Cost (POC). While regret is felt after the choice, the POC is experienced at the very moment of choosing. Our model predicts that regret aversion yields information avoidance at decision time, as well as greater reluctance to take on risk. We also show that a regret-averse decision maker can exhibit correlation loving. Equally, our model sheds new light on experimental studies about suboptimal choices, such as inaction inertia.

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  • Gabillon, Emmanuelle, 2020. "When choosing is painful: Anticipated regret and psychological opportunity cost," Journal of Economic Behavior & Organization, Elsevier, vol. 178(C), pages 644-659.
    • Handle: RePEc:eee:jeborg:v:178:y:2020:i:c:p:644-659
    DOI: 10.1016/j.jebo.2020.08.010
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    Cited by:

    1. Emmanuelle Gabillon, 2022. "Regret aversion and information aversion," Working Papers hal-03898012, HAL.
    2. Emmanuelle GABILLON, 2022. "Regret aversion and information aversion," Bordeaux Economics Working Papers 2022-12, Bordeaux School of Economics (BSE).
    3. Yushi Wang & Licheng Sun & Shilong Li, 2022. "Production Decisions of Automakers Considering the Impact of Anticipated Regret under the Dual-Credit Policy," Sustainability, MDPI, vol. 14(11), pages 1-18, May.

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    More about this item

    Keywords

    Choice; Correlation loving; Inaction inertia; Information; Regret; Risk aversion;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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