Too Proud to Stop: Regret in Dynamic Decisions

69 Pages Posted: 15 Jul 2014 Last revised: 23 Sep 2019

See all articles by Philipp Strack

Philipp Strack

Yale, Department of Economics

Paul Viefers

A.T. Kearney GmbH

Multiple version iconThere are 2 versions of this paper

Date Written: September 24, 2013

Abstract

Regret and its anticipation affect a wide range of decisions. Job-seekers reject offers while waiting for an offer to match their best past offer; investors hold on to badly performing stocks; and managers throw good money after bad projects. We analyze behavior of a decision-maker with regret preferences in a dynamic context and show that regret agents have a disposition to gamble until they receive a payoff matching the best past offer. Results from a lab experiment confirm that many subjects exhibit such behavior and are reluctant to stop below the past peak.

Keywords: Optimal stopping, Dynamic behavior, Regret

JEL Classification: D03, C91

Suggested Citation

Strack, Philipp and Viefers, Paul, Too Proud to Stop: Regret in Dynamic Decisions (September 24, 2013). Available at SSRN: https://ssrn.com/abstract=2465840 or http://dx.doi.org/10.2139/ssrn.2465840

Philipp Strack

Yale, Department of Economics ( email )

28 Hillhouse Ave
New Haven, CT 06520-8268
United States

Paul Viefers (Contact Author)

A.T. Kearney GmbH ( email )

Dreischeibenhaus 1
Düsseldorf, Deutschland (DEU) 40211
Germany

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