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A Theory of Regret and Information

Emmanuelle Gabillon ()

Cahiers du GREThA (2007-2019) from Groupe de Recherche en Economie Théorique et Appliquée (GREThA)

Abstract: Following Quiguin (1994), we propose a general model of preferences that accounts for individuals\' regret concerns. By confronting the commonly-accepted additive and multiplicative regret utility functions to this model, we establish certain characteristics that these utility functions require to be in conformity with our preferences model. Equally, as regret is intrinsically related to the concept of information about the foregone alternatives, we generalize our framework so that it can accomodate any information structure. We show that the less informative that structure is, the higher the utility of a regretful individual. This result means that an individual prefers not to be exposed to ex post information about the foregone alternatives. We also focus on information value, and consider two cases. That of flexibility, where information arrives before the choice and can be used to determine the optimal strategy; that of non-flexibility, where information arrives after the choice. We show that information value is negative when there is no flexibility, and that it can also be negative when there is flexibility.

Keywords: regret; information; choice under uncertainty; bivariate risk aversion (search for similar items in EconPapers)
JEL-codes: D03 D81 D82 (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-cbe, nep-cta and nep-upt
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Working Paper: A theory of regret and information (2011)
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