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Regret theory and the competitive firm: A comment

Cuizhen Niu, Xu Guo (), Tao Wang and Peirong Xu

Economic Modelling, 2014, vol. 41, issue C, 312-315

Abstract: In a recent paper, Wong [Wong, K. P. (2014), Regret theory and the competitive firm. Economic Modelling, 36, 172–175.] develops a model to examine the production behavior of a regret averse competitive firm. Wong discusses the sufficient condition to ensure the conventional result that the optimal output level under uncertainty is less than that under certainty hold. Our contributions in this note are two-fold. Firstly, we point out that Wong's condition in terms of the first order derivatives of the utility function and the regret function is actually not sufficient. Secondly and more importantly, we show that a sufficient condition should be in terms of the relatively increase rate of the first order derivatives of the two functions. That's, it's the ratio of the risk aversion and regret aversion degree that matters. Our proposed condition requests that the firm should be not too regret averse.

Keywords: Production; Regret theory; Uncertainty (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1016/j.econmod.2014.05.031

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