Dynamic Regret Avoidance

67 Pages Posted: 24 Feb 2017 Last revised: 10 Aug 2018

Michele Fioretti

University of Southern California, Department of Economics, Students

Alexander Vostroknutov

University of Trento

Giorgio Coricelli

University of Southern California - Department of Economics

Date Written: August 9, 2018

Abstract

In a stock market experiment we examine how regret avoidance influences the decision to sell an asset while its price changes over time. Participants know beforehand whether they will observe the future prices after they sell the asset or not. Without future prices participants are affected only by regret about previously observed high prices (past regret), but, when future prices are available, they also avoid regret about expected after-sale high prices (future regret). Moreover, as the relative sizes of past and future regret change, participants dynamically switch between them. This demonstrates how multiple reference points dynamically influence sales.

Keywords: stock market behavior, behavioral finance, regret avoidance, dynamic regret, dynamic discrete choice, structural models, experiments, multiple reference points

JEL Classification: C91, D91

Suggested Citation

Fioretti, Michele and Vostroknutov, Alexander and Coricelli, Giorgio, Dynamic Regret Avoidance (August 9, 2018). USC-INET Research Paper No. 17-07. Available at SSRN: https://ssrn.com/abstract=2922256 or http://dx.doi.org/10.2139/ssrn.2922256

Michele Fioretti (Contact Author)

University of Southern California, Department of Economics, Students ( email )

3620 South Vermont Ave. Kaprielian (KAP) Hall, 300
Los Angeles, CA 90089
United States

HOME PAGE: http://michelefioretti.weebly.com

Alexander Vostroknutov

University of Trento ( email )

Via Giuseppe Verdi 26
Trento, Trento 38152
Italy

HOME PAGE: http://www.vostroknutov.com

Giorgio Coricelli

University of Southern California - Department of Economics ( email )

3620 South Vermont Ave. Kaprielian (KAP) Hall, 300
Los Angeles, CA 90089
United States

HOME PAGE: http://dornsife.usc.edu/coricelli/

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