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A Theory of Regret and Information

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  • Emmanuelle GABILLON (GREThA, CNRS, UMR 5113)
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    Abstract

    Following Quiguin (1994), we propose a general model of preferences that accounts for individuals\' regret concerns. By confronting the commonly-accepted additive and multiplicative regret utility functions to this model, we establish certain characteristics that these utility functions require to be in conformity with our preferences model. Equally, as regret is intrinsically related to the concept of information about the foregone alternatives, we generalize our framework so that it can accomodate any information structure. We show that the less informative that structure is, the higher the utility of a regretful individual. This result means that an individual prefers not to be exposed to ex post information about the foregone alternatives. We also focus on information value, and consider two cases. That of flexibility, where information arrives before the choice and can be used to determine the optimal strategy; that of non-flexibility, where information arrives after the choice. We show that information value is negative when there is no flexibility, and that it can also be negative when there is flexibility.

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    Bibliographic Info

    Paper provided by Groupe de Recherche en Economie Théorique et Appliquée in its series Cahiers du GREThA with number 2011-15.

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    Date of creation: 2011
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    Handle: RePEc:grt:wpegrt:2011-15

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    Related research

    Keywords: ; information; choice under uncertainty; bivariate risk aversion;

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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Information with negative value
      by Economic Logician in Economic Logic on 2011-05-06 14:51:00

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