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Regret in One-Shot and Recurrent Decisions: A Cautionary Tale

Author

Listed:
  • Alex Imas
  • Diego Lamé
  • Alistair J. Wilson

Abstract

Under regret theory, decision-makers derive utility both from the outcome of their chosen action and the counterfactual. Evidence for anticipatory regret aversion has been found in oneshot settings, with ”regret lotteries” that always reveal outcomes, as a counterfactual on non-entry, being priced higher than comparable standard lotteries that only realize outcomes for entrants. However, as anticipation and realization of regret necessarily interact in dynamic settings, the predictions of regret theory for repeated decisions are far from clear. Indeed while our one-shot experimental data corroborate the previous findings, data from a sequence of decisions show the reverse, with regret lotteries priced lower than standard lotteries and their certainty equivalents. Given the recent literature on the use of regret lotteries as incentives, our results suggest that while these lotteries can be effective for motivating one-time decisions, their benefits as a repeated incentive is less than clear. More generally, the paper illustrates the issues that can arise when extrapolating behavioral effects from one-shot to recurrent settings.

Suggested Citation

  • Alex Imas & Diego Lamé & Alistair J. Wilson, 2016. "Regret in One-Shot and Recurrent Decisions: A Cautionary Tale," CESifo Working Paper Series 5939, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_5939
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    File URL: https://www.cesifo-group.de/DocDL/cesifo1_wp5939.pdf
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    References listed on IDEAS

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    1. Loomes, Graham & Sugden, Robert, 1982. "Regret Theory: An Alternative Theory of Rational Choice under Uncertainty," Economic Journal, Royal Economic Society, vol. 92(368), pages 805-824, December.
    2. Saugato Datta & Sendhil Mullainathan, 2014. "Behavioral Design: A New Approach to Development Policy," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 60(1), pages 7-35, March.
    3. Paul Viefers & Philipp Strack, 2014. "Too Proud to Stop: Regret in Dynamic Decisions," Discussion Papers of DIW Berlin 1401, DIW Berlin, German Institute for Economic Research.
    4. Zeelenberg, M., 1999. "Anticipated regret, expected feedback and behavioral decision-making," Other publications TiSEM 38371d1b-31fd-45b0-860f-b, Tilburg University, School of Economics and Management.
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    Cited by:

    1. Felix Koelle & Tom Lane & Daniele Nosenzo & Chris Starmer, 2017. "Nudging the electorate: what works and why?," Discussion Papers 2017-16, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.

    More about this item

    Keywords

    regret aversion; separability; incentives;

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