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Dynamic Regret Avoidance

Author

Listed:
  • Michele Fioretti

    (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique)

  • Alexander Vostroknutov

    (Maastricht University [Maastricht])

  • Giorgio Coricelli

    (USC - University of Southern California)

Abstract

In a stock market experiment, we examine how regret avoidance influences the decision to sell an asset while its price changes over time. Participants know beforehand whether they will observe the future prices after they sell the asset or not. Without future prices, participants are affected only by regret about previously observed high prices (past regret), but when future prices are available, they also avoid regret about expected after-sale high prices (future regret). Moreover, as the relative sizes of past and future regret change, participants dynamically switch between them. This demonstrates how multiple reference points dynamically influence sales. (JEL C91, G12, G41)

Suggested Citation

  • Michele Fioretti & Alexander Vostroknutov & Giorgio Coricelli, 2022. "Dynamic Regret Avoidance," SciencePo Working papers Main hal-03562318, HAL.
    • Handle: RePEc:hal:spmain:hal-03562318
    DOI: 10.1257/mic.20180260
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-03562318
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    2. Klimm, Felix & Kocher, Martin G. & Opitz, Timm & Schudy, Simeon, 2023. "Time pressure and regret in sequential search," Journal of Economic Behavior & Organization, Elsevier, vol. 206(C), pages 406-424.

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    More about this item

    Keywords

    stock market behavior; behavioral finance; regret avoidance; dynamic regret; dynamic discrete choice; structural models; experiments; multiple reference points;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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