Wednesday, September 16, 2015

Regret Theory: A New Foundation

DIECIDUE Enrico, SOMASUNDARAM Jeeva
Read the working paper
INSEAD Working Paper 2015/68/DSC

We present a new behavioral foundation for regret theory. The central axiom of this foundation — trade-off consistency — renders regret theory observable at the individual level and makes our foundation consistent with the existing measurement method. For the first time, our behavioral foundation allows deriving a continuous regret theory representation and separating utility from regret. Finally, the axioms in the behavioral foundation clarify that regret theory minimally deviates from expected utility by relaxing transitivity only.