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Ignorance is bliss: a game of regret

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Cerrone,  Claudia
Max Planck Institute for Research on Collective Goods, Max Planck Society;

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Citation

Cerrone, C., Feri, F., & Neary, P. R. (2019). Ignorance is bliss: a game of regret.


Cite as: http://hdl.handle.net/21.11116/0000-0003-FE13-A
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.