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Regret Aversion, Regret Neutrality, and Risk Aversion in Production

Xu Guo () and Wing-Keung Wong ()

No 1709, Economic Growth Centre Working Paper Series from Nanyang Technological University, School of Social Sciences, Economic Growth Centre

Abstract: Previous studies focus on the comparison of the optimal output levels of regret-averse firms under uncertainty and firms under certainty. This paper extends the theory by investigating the effects of both regret-aversion and regret-neutrality on production. We compare the optimal output levels of both regret-averse and regret-neutral firms with purely risk-averse firms under uncertainty and firms under certainty. We first show that the regret-neutral ?rms will surely produce more than its purely risk-averse counterparts and surely produce less than firms under certainty. Thereafter, we give sufficient conditions to ensure the regret-averse firms to produce more than both purely risk-averse and regret-neutral counterparts and study the comparative statics of the optimal production. We also develop properties of regret aversion on production in a binary model. The finding in this paper is useful for production managers in their decision on the production.

Keywords: Production; Regret aversion; Regret neutrality; Risk aversion; Regret theory; Uncertainty. (search for similar items in EconPapers)
JEL-codes: D21 D24 D81 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2017-09
New Economics Papers: this item is included in nep-ore, nep-sea and nep-upt
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