Correcting expected utility for comparisons between alternative outcomes: A unified parameterization of regret and disappointment

Carlos E. Laciana, Elke U. Weber

Research output: Contribution to journalArticlepeer-review

42 Scopus citations

Abstract

A unified parameterization of an expected utility model corrected for regret and disappointment effects is presented, constrained to conform to a well-known choice pattern, the common consequence effect, a special case of the Allais paradox. For choices subject to regret and disappointment effects to be consistent with this choice pattern, the function that corrects the utility of the obtained outcome has to have a positive second derivative for its regret component and a negative second derivative for its disappointment component. These hypothesized functional forms make predictions about the relative effect that small vs. large differences between obtained and alternative outcomes should have on people's experiences of regret or disappointment.

Original languageEnglish (US)
Pages (from-to)1-17
Number of pages17
JournalJournal of Risk and Uncertainty
Volume36
Issue number1
DOIs
StatePublished - Feb 2008

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics

Keywords

  • Alternative outcomes
  • Disappointment
  • Regret

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