The firm under regret aversion

Udo Broll, Peter Welzel () and Kit Pong Wong

No 03/17, CEPIE Working Papers from Technische Universität Dresden, Center of Public and International Economics (CEPIE)

Abstract: We examine the economic behavior of the regret-averse firm under price uncertainty. We show that the global and marginal effects of price uncertainty on production are both positive (negative) 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 minimize 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 the regret-averse firm's production decision.

Keywords: Production; Regret theory; Skewness; Uncertainty (search for similar items in EconPapers)
JEL-codes: D21 D24 D81 (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:tudcep:0317

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