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Regret Theory and Salience Theory: Total Strangers, Distant Relatives or Close Cousins?

Fabian Herweg and Daniel Müller

No 7445, CESifo Working Paper Series from CESifo Group Munich

Abstract: Two non-expected-utility-theory approaches to model decision making under risk are regret theory (Loomes and Sugden, 1982; Bell, 1982) and salience theory (Bordalo, Gennaioli, and Shleifer, 2012). While the psychological underpinning of these two approaches is different, the models share the assumption that within-state comparisons of outcomes across choice options are a key determinant of choice behavior. We investigate the overlap between the two theories and show that salience theory is a special case of regret theory. Moreover, we trace out the relationship be- tween diminishing sensitivity of the salience function and concavity of the choiceless utility function with regard to behavioral implications.

Keywords: choice under risk; regret theory; salience theory (search for similar items in EconPapers)
JEL-codes: D81 D91 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cbe, nep-mic and nep-upt
Date: 2019
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