Journal of Risk and Uncertainty

, Volume 36, Issue 1, pp 1–17 | Cite as

Correcting expected utility for comparisons between alternative outcomes: A unified parameterization of regret and disappointment

Article

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.

Keywords

Regret Disappointment Alternative outcomes 

JEL Classification

D8 D81 

Notes

Acknowledgments

The research was supported by an NSF Biocomplexity in the Environment grant (BE-0410348), an NSF Center grant under the Decision Making under Uncertainty Initiative (SES-0345840), and a NOAA Human Dimensions grant (GC04-159). We are grateful to Guillermo Podestá for valuable comments, to Xavier González for corrections to an older version of this article, and to an anonymous reviewer for very insightful and constructive criticism of a previous manuscript which resulted in the present version of this paper.

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Copyright information

© Springer Science+Business Media, LLC 2007

Authors and Affiliations

  1. 1.University of Buenos Aires, Facultad de Ingeniería, UBABuenos AiresArgentina
  2. 2.Columbia University, Graduate School of BusinessNew YorkUSA

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