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Regret vs. Disappointment theory Pavlo R. Blavatskyy

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Disappointment theory Initial idea: Bell (1985), Loomes and Sugden (1986) Established model: Gul (1991) Prospect based model “Disappointment is a psychological reaction to a choice outcome that does not meet one’s expectation”

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Disappointment theory continued Bell: one’s psychological expectation = EV Individual is disappointed when an outcome worse than EV occurs

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Disappointment theory example L 1 9 with certainty L 2 (0, 0.9 ;100, 0.1) Value of L 2 is likely to be lower than value of L 1 … because L 2 allows for possibility to receive 0 < EV (L 2 )

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Regret theory Initial idea: Bell (1982, 83), Loomes and Sugden (1982) Established model: Loomes and Sugden (1987) Comparison between a chosen prospect and a foregone prospect Special case of Fishburn (1988) BSS theory

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Regret theory continued Regret is a psychological reaction to a choice of a prospect whose performance is worse than the performance of a foregone prospect

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Regret theory formula States of the world s 1, …, s n

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Regret theory example State s 1 (s 3 ) causes regret when L 1 (L 2 ) is chosen State s 1 US wins State s 2 a draw State s 3 CZ wins Lottery L 1 ”Czech performance” 025 Lottery L 2 “US performance” 520

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