In decision theory, regret aversion (or anticipated regret) describes how the human emotional response of regret can influence decision-making under uncertainty. When individuals make choices without complete information, they often experience regret if they later discover that a different choice would have produced a better outcome. This regret can be quantified as the difference in value between the actual decision made and what would have been the optimal decision in hindsight. Unlike traditional models that consider regret as merely a post-decision emotional response, the theory of regret aversion proposes that decision-makers actively anticipate potential future regret and incorporate this anticipation into their current decision-making process. This anticipation can lead individuals to make choices specifically designed to minimize the possibility of experiencing regret later, even if those choices are not optimal from a purely probabilistic expected-value perspective. Regret is a powerful negative emotion with significant social and reputational implications, playing a central role in how humans learn from experience and in the psychology of risk aversion. The conscious anticipation of regret creates a feedback loop that elevates regret from being simply an emotional reaction—often modeled as mere human behavior—into a key factor in rational choice behavior that can be formally modeled in decision theory. This anticipatory mechanism helps explain various observed decision patterns that deviate from standard expected utility theory, including status quo bias, inaction inertia, and the tendency to avoid decisions that might lead to easily imagined counterfactual scenarios where a better outcome would have occurred.
Description Regret theory is a model in theoretical economics simultaneously developed in 1982 by Graham Loomes and Robert Sugden, David E. Bell, and Peter C. Fishburn. Regret theory models choice under uncertainty taking into account the effect of anticipated regret. Subsequently, several other authors improved upon it. It incorporates a regret term in the utility function which depends negatively on the realized outcome and positively on the best alternative outcome given the uncertainty resolution. This regret term is usually an increasing, continuous and non-negative function subtracted to the traditional utility index. These types of preferences always violate transitivity in the traditional sense, although most satisfy a weaker version. For independent lotteries and when regret is evaluated over the difference between utilities and then averaged over all combinations of outcomes, the regret can still be transitive but for only specific form of regret functional. It is shown that only hyperbolic sine function will maintain this property. This form of regret inherits most of desired features, such as holding right preferences in face of first order stochastic dominance, risk averseness for logarithmic utilities and the ability to explain Allais paradox. Regret aversion is not only a theoretical economics model, but a cognitive bias occurring as a decision has been made to abstain from regretting an alternative decision. To better preface, regret aversion can be seen through fear by either commission or omission; the prospect of committing to a failure or omitting an opportunity that we seek to avoid. Regret, feeling sadness or disappointment over something that has happened, can be rationalized for a certain decision, but can guide preferences and can lead people astray. This contributes to the spread of disinformation because things are not seen as one's personal responsibility.
Evidence Several experiments over both incentivized and hypothetical choices attest to the magnitude of this effect. Experiments in first price auctions show that by manipulating the feedback the participants expect to receive, significant differences in the average bids are observed. In particular, "Loser's regret" can be induced by revealing the winning bid to all participants in the auction, and thus revealing to the losers whether they would have been able to make a profit and how much could it have been (a participant that has a valuation of $50, bids $30 and finds out the winning bid was $35 will also learn that he or she could have earned as much as $15 by bidding anything over $35.) This in turn allows for the possibility of regret and if bidders correctly anticipate this, they would tend to bid higher than in the case where no feedback on the winning bid is provided in order to decrease the possibility of regret. In decisions over lotteries, experiments also provide supporting evidence of anticipated regret. As in the case of first price auctions, differences in feedback over the resolution of the uncertainty can cause the possibility of regret and if this is anticipated, it may induce different preferences. For example, when faced with a choice between $40 with certainty and a coin toss that pays $100 if the outcome is guessed correctly and $0 otherwise, not only does the certain payment alternative minimizes the risk but also the possibility of regret, since typically the coin will not be tossed (and thus the uncertainty not resolved) while if the coin toss is chosen, the outcome that pays $0 will induce regret. If the coin is tossed regardless of the chosen alternative, then the alternative payoff will always be known and then there is no choice that will eliminate the possibility of regret.
Anticipated regret versus experienced regret Anticipated regret tends to be overestimated for both choices and actions over which people perceive themselves to be responsible. People are particularly likely to overestimate the regret they will feel when missing a desired outcome by a narrow margin. In one study, commuters predicted they would experience greater regret if they missed a train by 1 minute more than missing a train by 5 minutes, for example, but commuters who actually missed their train by 1 or 5 minutes experienced (equal and) lower amounts of regret. Commuters appeared to overestimate the regret they would feel when missing the train by a narrow margin, because they tended to underestimate the extent to which they would attribute missing the train to external causes (e.g., missing their wallet or spending less time in the shower).
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