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Regret theory and risk attitudes

Jeeva Somasundaram and Enrico Diecidue ()
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Jeeva Somasundaram: INSEAD
Enrico Diecidue: INSEAD

Journal of Risk and Uncertainty, 2017, vol. 55, issue 2, 147-175

Abstract: Abstract We examine risk attitudes under regret theory and derive analytical expressions for two components—the resolution and regret premiums—of the risk premium under regret theory. We posit that regret-averse decision makers are risk seeking (resp., risk averse) for low (resp., high) probabilities of gains and that feedback concerning the foregone option reinforces risk attitudes. We test these hypotheses experimentally and estimate empirically both the resolution premium and the regret premium. Our results confirm the predominance of regret aversion but not the risk attitudes predicted by regret theory; they also clarify how feedback affects attitudes toward both risk and regret.

Keywords: Regret theory; Resolution premium; Regret premium; Regret aversion (search for similar items in EconPapers)
JEL-codes: D81 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1007/s11166-017-9268-9

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