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Ignorance is bliss: a game of regret

Claudia Cerrone (), Francesco Feri () and Philip R. Neary ()
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Francesco Feri: Royal Holloway, Department of Economics
Philip R. Neary: Royal Holloway, Department of Economics

No 2019_10, Discussion Paper Series of the Max Planck Institute for Research on Collective Goods from Max Planck Institute for Research on Collective Goods

Abstract: Existing models of regret aversion assume that individuals can make an ex-post comparison between their choice and a foregone alternative. Yet in many situations such a comparison can be made only if someone else chose the alternative option. We develop a model where regret-averse agents must decide between the status quo and a new risky option that outperforms the status quo in expectation, and learn the outcome of the risky option, if unchosen, with a probability that depends on the choices of others. This turns what was previously a series of single-person decision problems into a coordination game. Most notably, regret can facilitate coordination on the status quo { an action that would not be observed if the agents were acting in isolation or had standard preferences. We experimentally test the model and find that regret-averse agents behave as predicted by our theory.

Keywords: regret aversion; coordination games; information (search for similar items in EconPapers)
JEL-codes: C72 C92 D81 D91 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cbe, nep-evo, nep-gth, nep-hpe, nep-mic and nep-upt
Date: 2019-07
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