IDEAS home Printed from https://ideas.repec.org/p/trf/wpaper/71.html
   My bibliography  Save this paper

Regret in Dynamic Decision Problems

Author

Listed:
  • Krähmer, Daniel
  • Stone, Rebecca

Abstract

The paper proposes a framework to extend regret theory to dynamic contexts. The key idea is to conceive of a dynamic decision problem with regret as an intra-personal game in which the agent forms conjectures about the behaviour of the various counterfactual selves that he could have been. We derive behavioural implications in situations in which payoffs are correlated across either time or contingencies. In the first case, regret might lead to excess conservatism or a tendency to make up for missed opportunities. In the second case, behaviour is shaped by the agent’s self-conception. We relate our results to empirical evidence.

Suggested Citation

  • Krähmer, Daniel & Stone, Rebecca, 2005. "Regret in Dynamic Decision Problems," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 71, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  • Handle: RePEc:trf:wpaper:71
    as

    Download full text from publisher

    File URL: https://epub.ub.uni-muenchen.de/13479/1/71.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Paul Heidhues & Botond Köszegi, 2004. "The Impact of Consumer Loss Aversion on Pricing," CIG Working Papers SP II 2004-17, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
    2. Starmer, Chris & Sugden, Robert, 1993. "Testing for Juxtaposition and Event-Splitting Effects," Journal of Risk and Uncertainty, Springer, vol. 6(3), pages 235-254, June.
    3. Botond Kőszegi & Matthew Rabin, 2006. "A Model of Reference-Dependent Preferences," The Quarterly Journal of Economics, Oxford University Press, vol. 121(4), pages 1133-1165.
    4. David E. Bell, 1983. "Risk Premiums for Decision Regret," Management Science, INFORMS, vol. 29(10), pages 1156-1166, October.
    5. Zeelenberg, Marcel & Beattie, Jane, 1997. "Consequences of Regret Aversion 2: Additional Evidence for Effects of Feedback on Decision Making," Organizational Behavior and Human Decision Processes, Elsevier, vol. 72(1), pages 63-78, October.
    6. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
    7. Camerer, Colin F. & Weber, Roberto A., 1999. "The econometrics and behavioral economics of escalation of commitment: a re-examination of Staw and Hoang's NBA data," Journal of Economic Behavior & Organization, Elsevier, vol. 39(1), pages 59-82, May.
    8. Loomes, Graham & Starmer, Chris & Sugden, Robert, 1991. "Observing Violations of Transitivity by Experimental Methods," Econometrica, Econometric Society, vol. 59(2), pages 425-439, March.
    9. Bernheim, B Douglas, 1984. "Rationalizable Strategic Behavior," Econometrica, Econometric Society, vol. 52(4), pages 1007-1028, July.
    10. Larrick, Richard P. & Boles, Terry L., 1995. "Avoiding Regret in Decisions with Feedback: A Negotiation Example," Organizational Behavior and Human Decision Processes, Elsevier, vol. 63(1), pages 87-97, July.
    11. Tsiros, Michael & Mittal, Vikas, 2000. " Regret: A Model of Its Antecedents and Consequences in Consumer Decision Making," Journal of Consumer Research, Oxford University Press, vol. 26(4), pages 401-417, March.
    12. Prendergast, Canice & Stole, Lars, 1996. "Impetuous Youngsters and Jaded Old-Timers: Acquiring a Reputation for Learning," Journal of Political Economy, University of Chicago Press, vol. 104(6), pages 1105-1134, December.
    13. Ritov, Ilana, 1996. "Probability of Regret: Anticipation of Uncertainty Resolution in Choice," Organizational Behavior and Human Decision Processes, Elsevier, vol. 66(2), pages 228-236, May.
    14. Harless, David W, 1992. "Actions versus Prospects: The Effect of Problem Representation on Regret," American Economic Review, American Economic Association, vol. 82(3), pages 634-649, June.
    15. Starmer, Chris & Sugden, Robert, 1998. "Testing Alternative Explanations of Cyclical Choices," Economica, London School of Economics and Political Science, vol. 65(259), pages 347-361, August.
    16. Geanakoplos, John & Pearce, David & Stacchetti, Ennio, 1989. "Psychological games and sequential rationality," Games and Economic Behavior, Elsevier, vol. 1(1), pages 60-79, March.
    17. J. Jeffrey Inman & James S. Dyer & Jianmin Jia, 1997. "A Generalized Utility Model of Disappointment and Regret Effects on Post-Choice Valuation," Marketing Science, INFORMS, pages 97-111.
    18. Zeelenberg, Marcel & Pieters, Rik, 2004. "Consequences of regret aversion in real life: The case of the Dutch postcode lottery," Organizational Behavior and Human Decision Processes, Elsevier, vol. 93(2), pages 155-168, March.
    19. Loomes, Graham & Sugden, Robert, 1987. "Testing for Regret and Disappointment in Choice under Uncertainty," Economic Journal, Royal Economic Society, vol. 97(388a), pages 118-129, Supplemen.
    20. Andrew Caplin & John Leahy, 2001. "Psychological Expected Utility Theory and Anticipatory Feelings," The Quarterly Journal of Economics, Oxford University Press, vol. 116(1), pages 55-79.
    21. Ben Irons & Cameron Hepburn, 2007. "Regret Theory and the Tyranny of Choice," The Economic Record, The Economic Society of Australia, vol. 83(261), pages 191-203, June.
    22. Zeelenberg, Marcel & Beattie, Jane & van der Pligt, Joop & de Vries, Nanne K., 1996. "Consequences of Regret Aversion: Effects of Expected Feedback on Risky Decision Making," Organizational Behavior and Human Decision Processes, Elsevier, vol. 65(2), pages 148-158, February.
    23. Loomes, Graham & Starmer, Chris & Sugden, Robert, 1992. "Are Preferences Monotonic? Testing Some Predictions of Regret Theory," Economica, London School of Economics and Political Science, vol. 59(233), pages 17-33, February.
    24. Loomes, Graham, 1988. "Further Evidence of the Impact of Regret and Disappointment in Choice under Uncertainty," Economica, London School of Economics and Political Science, vol. 55(217), pages 47-62, February.
    25. Matthew Rabin, 1998. "Psychology and Economics," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 11-46, March.
    26. Loomes, Graham, 1988. "When Actions Speak Louder Than Prospects," American Economic Review, American Economic Association, vol. 78(3), pages 463-470, June.
    27. Loomes, Graham & Sugden, Robert, 1987. "Some implications of a more general form of regret theory," Journal of Economic Theory, Elsevier, vol. 41(2), pages 270-287, April.
    28. Zeelenberg, M. & Pieters, R., 2004. "Consequences of regret aversion in real life : The case of the Dutch postcode lottery," Other publications TiSEM d16cb90a-f96c-4fce-b4c7-4, Tilburg University, School of Economics and Management.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Michenaud, Sébastien & Solnik, Bruno, 2008. "Applying regret theory to investment choices: Currency hedging decisions," Journal of International Money and Finance, Elsevier, vol. 27(5), pages 677-694, September.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:trf:wpaper:71. 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: (Tamilla Benkelberg). General contact details of provider: http://edirc.repec.org/data/vfmunde.html .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.