Comparison of the production behavior of regret-averse and purely risk-averse firms

Xu Guo and Wing-Keung Wong

Estudios de Economia, 2019, vol. 46, issue 2, 157 - 172

Abstract: Previous studies focused on the comparison of the optimal output levels of regretaverse firms under uncertainty and firms under certainty. This paper extends the theory by further investigating the effects of regret-aversion on production. We compare the optimal output levels of regret-averse firms with purely riskaverse firms under uncertainty and firms under certainty. We first show that the linear-regret firms will surely produce more than their purely risk-averse counterparts and surely produce less than firms under certainty. Thereafter, we give sufficient conditions to ensure the regret-averse firms to produce more than the purely risk-averse counterparts and study the comparative statics of the optimal production. We also develop properties of regret-aversion on production by using a binary model. The findings in this paper are useful for production managers in their decisions on the production.

Keywords: Production; regret aversion; risk aversion; uncertainty (search for similar items in EconPapers)
JEL-codes: D21 D24 D81 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:udc:esteco:v:46:y:2019:i:1:p:157-172

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