Too Proud to Stop: Regret in Dynamic Decisions

59 Pages Posted: 15 Jul 2014 Last revised: 25 Nov 2015

Philipp Strack

University of California, Berkeley - Department of Economics

Paul Viefers

University of Cologne

Multiple version iconThere are 2 versions of this paper

Date Written: November 24, 2015

Abstract

Regret and its anticipation affect a wide range of decisions. Jobseekers reject offers 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 a payoff matching the best past offer is received. 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 (November 24, 2015). Available at SSRN: https://ssrn.com/abstract=2465840 or http://dx.doi.org/10.2139/ssrn.2465840

Philipp Strack

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States

HOME PAGE: http://philippstrack.com

Paul Viefers (Contact Author)

University of Cologne ( email )

Universitätsstr. 22a
Cologne, 50931
Germany

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