Regret theory and the competitive firm revisited

Udo Broll (), Peter Welzel () and Kit Pong Wong
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Udo Broll: Technische Universität Dresden
Kit Pong Wong: University of Hong Kong

Eurasian Economic Review, 2016, vol. 6, issue 3, No 6, 487 pages

Abstract: Abstract This paper revisits the impact of regret aversion on the behavior of the competitive firm under price uncertainty. We show that the firm optimally produces more (less) when regret aversion prevails if the random output price is positively (negatively) skewed. In this case, high (low) output prices are much more likely to be seen than low (high) output prices. To avoid regret, the firm is induced to raise (lower) its output optimal level. The skewness of the price distribution as such plays a pivotal role in determining how regret aversion affects the firm’s production decision.

Keywords: Production; Regret theory; Uncertainty; D21; D24; D81 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s40822-016-0053-x

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