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Regret theory and the competitive firm revisited

Author

Listed:
  • Udo Broll

    (Technische Universität Dresden)

  • Peter Welzel

    (University of Augsburg)

  • Kit Pong Wong

    (University of Hong Kong)

Abstract

This paper revisits the impact of regret aversion on the behavior of the competitive firm under price uncertainty. We show that the firm optimally produces more (less) when regret aversion prevails if the random output price is positively (negatively) skewed. In this case, high (low) output prices are much more likely to be seen than low (high) output prices. To avoid regret, the firm is induced to raise (lower) its output optimal level. The skewness of the price distribution as such plays a pivotal role in determining how regret aversion affects the firm’s production decision.

Suggested Citation

  • Udo Broll & Peter Welzel & Kit Pong Wong, 2016. "Regret theory and the competitive firm revisited," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 6(3), pages 481-487, December.
    • Handle: RePEc:spr:eurase:v:6:y:2016:i:3:d:10.1007_s40822-016-0053-x
    DOI: 10.1007/s40822-016-0053-x
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    References listed on IDEAS

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    Cited by:

    1. Broll, Udo & Welzel, Peter & Wong, Kit Pong, 2017. "The firm under regret aversion," CEPIE Working Papers 03/17, Technische Universität Dresden, Center of Public and International Economics (CEPIE).
    2. Broll, Udo & Welzel, Peter & Wong, Kit Pong, 2020. "Regret aversion and asymmetric price distribution," The Journal of Economic Asymmetries, Elsevier, vol. 21(C).

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