Anticipated regret as an explanation of uncertainty aversion
The paper provides a psychological explanation of uncertainty aversion based on the fear of regret. We capture an agent’s regret using a reference-dependent utility function in which the agent’s utility depends on the performance of his chosen option relative to the performance of the option that would have been best ex post. An uncertain option is represented as a compound lottery. The basic idea is that selecting a compound lottery reveals information, which alters the ex post assessment of what the best choice would have been, inducing regret. We provide sufficient conditions under which regret implies uncertainty aversion in the sense of quasi-concave preferences over compound lotteries. Copyright Springer-Verlag 2013
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 52 (2013)
Issue (Month): 2 (March)
|Contact details of provider:|| Web page: http://link.springer.de/link/service/journals/00199/index.htm|
|Order Information:||Web: http://link.springer.de/orders.htm|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- David S. Ahn, 2008. "Ambiguity Without a State Space," Review of Economic Studies, Oxford University Press, vol. 75(1), pages 3-28.
- Geanakoplos, John & Pearce, David & Stacchetti, Ennio, 1989. "Psychological games and sequential rationality," Games and Economic Behavior, Elsevier, vol. 1(1), pages 60-79, March.
- Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April.
- Michael Baye & Dan Kovenock & Casper Vries, 2012.
"Contests with rank-order spillovers,"
Springer, vol. 51(2), pages 315-350, October.
- Michael R. Baye & Dan Kovenock & Casper G. de Vries, 2008. "Contests with Rank-Order Spillovers," Working Papers 2008-20, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
- Michael R. Baye & Dan Kovenock & Casper G. de Vries, 2009. "Contests with Rank-Order Spillovers," Tinbergen Institute Discussion Papers 09-066/2, Tinbergen Institute.
- Baye, Michael R. & Kovenock, Dan & Vries, Casper G. de, 2009. "Contests with rank-order spillovers," Discussion Papers, Research Unit: Market Processes and Governance SP II 2009-09, Social Science Research Center Berlin (WZB).
- Ghirardato, Paolo & Maccheroni, Fabio & Marinacci, Massimo, 2004. "Differentiating ambiguity and ambiguity attitude," Journal of Economic Theory, Elsevier, vol. 118(2), pages 133-173, October.
- Matthew Rabin, 1998.
"Psychology and Economics,"
Journal of Economic Literature,
American Economic Association, vol. 36(1), pages 11-46, March.
- Matthew Rabin., 1997. "Psychology and Economics," Economics Working Papers 97-251, University of California at Berkeley.
- Rabin, Matthew, 1997. "Psychology and Economics," Department of Economics, Working Paper Series qt8jd5z5j2, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Paul R. Milgrom, 1979.
"Good Nevs and Bad News: Representation Theorems and Applications,"
407R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Paul R. Milgrom, 1981. "Good News and Bad News: Representation Theorems and Applications," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 380-391, Autumn.
- Pavlo Blavatskyy, 2011. "Loss aversion," Economic Theory, Springer, vol. 46(1), pages 127-148, January.
- Jose Apesteguia & Miguel A. Ballester, 2007.
"A theory of reference-dependent behavior,"
Economics Working Papers
1056, Department of Economics and Business, Universitat Pompeu Fabra.
- José Apesteguía & Miguel A. Ballester, 2004. "A Theory Of Reference-Dependent Beavior," Documentos de Trabajo - Lan Gaiak Departamento de Economía - Universidad Pública de Navarra 0402, Departamento de Economía - Universidad Pública de Navarra.
- Jose Apesteguia & Miguel Angel Ballester, 2007. "A Theory of Reference-Dependent Behavior," Working Papers 323, Barcelona Graduate School of Economics.
- Jürgen Eichberger & David Kelsey, 2008.
"Are the Treasures of Game Theory Ambiguous?,"
0469, University of Heidelberg, Department of Economics, revised Jul 2008.
- Uzi Segal, 1989.
"Two-Stage Lotteries Without the Reduction Axiom,"
UCLA Economics Working Papers
552, UCLA Department of Economics.
- David Schmeidler, 1989.
"Subjective Probability and Expected Utility without Additivity,"
Levine's Working Paper Archive
7662, David K. Levine.
- Schmeidler, David, 1989. "Subjective Probability and Expected Utility without Additivity," Econometrica, Econometric Society, vol. 57(3), pages 571-87, May.
- Segal, Uzi, 1987.
"The Ellsberg Paradox and Risk Aversion: An Anticipated Utility Approach,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(1), pages 175-202, February.
- Uzi Segal, 1985. "The Ellsberg Paradox and Risk Aversion: An Anticipated Utility Approach," UCLA Economics Working Papers 362, UCLA Department of Economics.
- Robert F. Nau, 2006. "Uncertainty Aversion with Second-Order Utilities and Probabilities," Management Science, INFORMS, vol. 52(1), pages 136-145, January.
- Halevy, Yoram, 2005.
"Ellsberg Revisited: an Experimental Study,"
Microeconomics.ca working papers
halevy-05-07-26-11-51-13, Vancouver School of Economics, revised 25 Feb 2014.
- Dominiak, Adam & Schnedler, Wendelin, 2010.
"Attitudes towards Uncertainty and Randomization: An Experimental Study,"
0494, University of Heidelberg, Department of Economics.
- Adam Dominiak & Wendelin Schnedler, 2011. "Attitudes toward uncertainty and randomization: an experimental study," Economic Theory, Springer, vol. 48(2), pages 289-312, October.
- Peter Klibanoff & Massimo Marinacci & Sujoy Mukerji, 2005.
"A Smooth Model of Decision Making under Ambiguity,"
Econometric Society, vol. 73(6), pages 1849-1892, November.
- Sujoy Mukerji & Peter Klibanoff, 2002. "A Smooth Model of Decision,Making Under Ambiguity," Economics Series Working Papers 113, University of Oxford, Department of Economics.
- Peter Klibanoff & Massimo Marinacci & Sujoy Mukerji, 2002. "A smooth model of decision making under ambiguity," ICER Working Papers - Applied Mathematics Series 11-2003, ICER - International Centre for Economic Research, revised Apr 2003.
- Hayashi, Takashi, 2008. "Regret aversion and opportunity dependence," Journal of Economic Theory, Elsevier, vol. 139(1), pages 242-268, March.
- Botond Koszegi & Matthew Rabin, 2005.
"A Model of Reference-Dependent Preferences,"
784828000000000341, UCLA Department of Economics.
- Koszegi, Botond & Rabin, Matthew, 2004. "A Model of Reference-Dependent Preferences," Department of Economics, Working Paper Series qt0w82b6nm, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Botond Koszegi & Matthew Rabin, 2004. "A Model of Reference-Dependent Preferences," Method and Hist of Econ Thought 0407001, EconWPA.
- David E. Bell, 1983. "Risk Premiums for Decision Regret," Management Science, INFORMS, vol. 29(10), pages 1156-1166, October.
When requesting a correction, please mention this item's handle: RePEc:spr:joecth:v:52:y:2013:i:2:p:709-728. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn)or (Christopher F Baum)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.