Cahier 2011-15

Title:A Theory of Regret and Information
Abstract:Following Quiguin (1994), we propose a general model of preferences that accounts for individuals' regret concerns. By confronting the commonly-accepted additive and multiplicative regret utility functions to this model, we establish certain characteristics that these utility functions require to be in conformity with our preferences model. Equally, as regret is intrinsically related to the concept of information about the foregone alternatives, we generalize our framework so that it can accomodate any information structure. We show that the less informative that structure is, the higher the utility of a regretful individual. This result means that an individual prefers not to be exposed to ex post information about the foregone alternatives. We also focus on information value, and consider two cases. That of flexibility, where information arrives before the choice and can be used to determine the optimal strategy; that of non-flexibility, where information arrives after the choice. We show that information value is negative when there is no flexibility, and that it can also be negative when there is flexibility.
Keyword(s):regret, information, choice under uncertainty, bivariate risk aversion
Auteur(s) :Emmanuelle Gabillon
JEL Class.:D03, D81, D82

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