Ignorance Is Bliss: A Game of Regret

36 Pages Posted: 15 Aug 2019

See all articles by Claudia Cerrone

Claudia Cerrone

Middlesex University; Max Planck Institute for Research on Collective Goods

Francesco Feri

University of London - Royal Holloway College

Philip R. Neary

University of London, Royal Holloway College - Department of Economics

Date Written: July 2019

Abstract

Existing models of regret aversion assume that individuals can make an ex-post comparison between their choice and a foregone alternative. Yet in many situations such a comparison can be made only if someone else chose the alternative option. We develop a model where regret-averse agents must decide between the status quo and a new risky option that outperforms the status quo in expectation, and learn the outcome of the risky option, if unchosen, with a probability that depends on the choices of others. This turns what was previously a series of single-person decision problems into a coordination game. Most notably, regret can facilitate coordination on the status quo – an action that would not be observed if the agents were acting in isolation or had standard preferences. We experimentally test the model and find that regret-averse agents behave as predicted by our theory.

Keywords: regret aversion; coordination games; information

JEL Classification: C72, C92, D81, D91

Suggested Citation

Cerrone, Claudia and Cerrone, Claudia and Feri, Francesco and Neary, Philip R., Ignorance Is Bliss: A Game of Regret (July 2019). MPI Collective Goods Discussion Paper, No. 2019/10, Available at SSRN: https://ssrn.com/abstract=3436723 or http://dx.doi.org/10.2139/ssrn.3436723

Claudia Cerrone (Contact Author)

Middlesex University ( email )

The Burroughs
London, NW4 4BT
United Kingdom

Max Planck Institute for Research on Collective Goods ( email )

Kurt Schumacher Str 10
Bonn, 53113
Germany

Francesco Feri

University of London - Royal Holloway College ( email )

Royal Holloway
University of London
Egham, TW200EX

HOME PAGE: http://francescoferi.xoom.it/

Philip R. Neary

University of London, Royal Holloway College - Department of Economics ( email )

Royal Holloway College
Egham
Surrey, Surrey TW20 0EX
United Kingdom

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