Correcting expected utility for comparisons between alternative outcomes: A unified parameterization of regret and disappointment |
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| Authors: | Carlos E Laciana Elke U Weber |
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| Institution: | (1) University of Buenos Aires, Facultad de Ingeniería, UBA, Av. Las Heras 2214, Buenos Aires, C1127AAR, Argentina;(2) Columbia University, Graduate School of Business, 716 Uris Hall, 3022 Broadway, New York, NY 10027, USA |
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| 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.
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| Keywords: | Regret Disappointment Alternative outcomes |
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