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When Choosing is Painful: A Psychological Opportunity Cost Model

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  • Emmanuelle Gabillon

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, we build a model of choice which accommodates any feedback structure. We also show that the reference point, which characterizes the regret utility function introduced by Quiggin (1994), does not always represent a feeling of regret. It corresponds to a broader concept, which we call psychological opportunity cost (POC), of which regret is no more than a specific expression. We find behavioral deviations from the predictions of the Expected Utility Theory. We obtain correlation loving, greater reluctance to take on risk and we highlight some harmful effects of information. Our model equally offers a theoretical framework for experimental studies about inaction inertia.

Suggested Citation

  • Emmanuelle Gabillon, 2018. "When Choosing is Painful: A Psychological Opportunity Cost Model," Cahiers du GREThA (2007-2019) 2018-18, Groupe de Recherche en Economie Théorique et Appliquée (GREThA).
    • Handle: RePEc:grt:wpegrt:2018-18
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    File URL: http://cahiersdugretha.u-bordeaux.fr/2018/2018-18.pdf
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    References listed on IDEAS

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    1. Michel Denuit & Louis Eeckhoudt & Béatrice Rey, 2010. "Some consequences of correlation aversion in decision science," Annals of Operations Research, Springer, vol. 176(1), pages 259-269, April.
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    4. Carmon, Ziv & Wertenbroch, Klaus & Zeelenberg, Marcel, 2003. "Option Attachment: When Deliberating Makes Choosing Feel Like Losing," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 30(1), pages 15-29, June.
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    7. Eeckhoudt, Louis & Denuit, Michel & Rey, Beatrice, 2010. "Some consequences of correlation aversion in decision science," LIDAM Reprints ISBA 2010027, Université catholique de Louvain, Institute of Statistics, Biostatistics and Actuarial Sciences (ISBA).
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    Cited by:

    1. Lu Li, 2021. "Opening up the black box: Technological transparency and prevention," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 88(3), pages 665-693, September.

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    More about this item

    Keywords

    choice; correlation loving; emotion; inaction inertia; information; regret.;
    All these keywords.

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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