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Ignorance is Bliss: A Game of Regret

Claudia Cerrone (), Francesco Feri and Philip R. Neary

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Abstract: The outcome of a foregone alternative is not always learnt. We incorporate this observation into the classic decision theoretic model of regret (Bell, 1982, Loomes and Sugden, 1982), allowing for the ex-post information available to a regret averse decision maker to vary with choice. We show that more ex-post information is never desirable for a regret averse individual. We then suppose that there are multiple regret averse decision makers and that the ex-post information available to each depends both on own choice and on the choices of others. Thus, what appeared to be a series of isolated single individual decision problems is in fact a rich multi player behavioural game that we term regret game, where the psychological payoffs that depend on ex post information are interconnected. For an open set of parameters, the regret game is a coordination game with multiple equilibria, and this despite the fact that all individuals share a uniquely optimal choice when the same decision problem is faced in isolation. We experimentally test the predictions and find strong support that regret averse individuals behave as predicted by our theory.

Date: 2021-09, Revised 2022-10
New Economics Papers: this item is included in nep-gth, nep-isf, nep-mic and nep-upt
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Working Paper: Ignorance is bliss: a game of regret (2019) Downloads
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