Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/204708 
Year of Publication: 
2019
Series/Report no.: 
Discussion Papers of the Max Planck Institute for Research on Collective Goods No. 2019/10
Publisher: 
Max Planck Institute for Research on Collective Goods, Bonn
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.
Subjects: 
regret aversion
coordination games
information
JEL: 
C72
C92
D81
D91
Document Type: 
Working Paper

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