Regret aversion and asymmetric price distribution

Udo Broll, Peter Welzel () and Kit Pong Wong

The Journal of Economic Asymmetries, 2020, vol. 21, issue C

Abstract: This paper examines the economic asymmetries between a regret-averse firm and a risk-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 asymmetrically distributed with positive (negative) skewness. 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 price uncertainty.

Keywords: Production; Regret aversion; Risk aversion; Skewness (search for similar items in EconPapers)
JEL-codes: D21 D24 D81 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:joecas:v:21:y:2020:i:c:s1703494920300037

DOI: 10.1016/j.jeca.2020.e00156

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