REGRET

WHAT IS REGRET?
Regret: a cognitively enriched emotion embodying a feeling of responsibility for negative outcomes of choices Regret involves interactions between rational thinking (counterfactual reasoning about alternative courses of action) and emotional ones (pain, feeling of responsibility for making the wrong choice)

A NEUROIMAGING STUDY OF REGRET

(CORICELLI ET AL. 2005)
Early evidence: orbito-frontal cortex damaged subjets dont experience regret How to assess the role of regret? Two conditions: 1.no-choice condition (follow: a computer chooses for you) 2.choice condition (choose) Choice among lotteries with different feedback conditions: 1.partial feedback: only the outcomes of the chosen lottery are shown 2.complete feedback: the outcome of both selected and unselected gambles are made available to the subject

EXPERIMENTAL RESULTS
Subject heart rate is significantly higher in choose trials! Wins/losses are reflected in variations of the ventral striatum (related to reward processing) only in the choose condition

EXPERIMENTAL RESULTS

In partial feedback conditions, brain activity is correlated to differences between obtained and un-obtained outcomes of the selected lottery (disappointment) In complete feedback, brain activity is correlated to differences between outcomes of the selected lottery and the outcomes of the unselected one (regret) Orbito-frontal cortex discriminates between levels of regret/relief!

REGRET AND EXPERIENCE

The proportion of regret-avoiding choices increases over time with the cumulative experience of regret.

THEORETICAL ATTEMPTS TO EXPLAIN REGRET

Loomes and Sugden (1982): Regret theory A utilitarian alternative to prospect theory Preserves a rational flavor while accounting for most common EU violations. Preserves the independence property but does not require transitivity.

Basic idea: when choosing between two alternatives, individuals anticipate regret for missed opportunities.

REGRET THEORY (1/2)

Novelty

Does not attempt at justifying observed violations Argues in favour of new framework able to explain them

Set up

Finite set of n possible states of the world (j) Each state probability pj Individuals choose between actions A Each A is a n-tuple of consequences x

REGRET THEORY (2/2)

Modified expected utility function

1. 2.

Choiceless utility Rejoice/regret utility

1.

Choiceless utility

Independent of choice Used to define utility of consequences given states

2.

Rejoice/regret

Determined by the difference in the choiceless utility of consequence given choice of chosen action (what is) and of alternative possible options (what could have been)

1. CHOICELESS UTILITY
Name comes from the fact that it is the utility one would derive from a consequences without having chosen it Notation: choiceless utility of choosing action Ai over action Ak, when state j occurs is cij k Modified utility of choosing Ai is mij M (cij , ckj )

Assigns a real-valued index k mij cij iff cij ckj Difference between mijk and cij -> feeling of regret and rejoice (see point 2)

Individuals choose maximizing the expected modified utility n

E p jm
k i j 1

k ij

General formulation of the model

2. REGRET/REJOICE FUNCTION
Difference between mijk and cij -> feeling of regret and rejoice, in other words comparison between what it is and what could have been Regret /rejoice function

m cij R(cij ckj )

k ij

R strictly increasing, 3-times differentiable with R(0)=0

Individuals use this function to try and anticipate the utility of different choices Individuals will prefer Ai to Ak when

AN ILLUSTRATIVE EXAMPLE
Consider three gambles A ,B, C defined over 3 possible states 1,2, 3. Assume the decision maker tries to minimize the regret he may feel Let us look at pairwise comparisons

AN ILLUSTRATIVE EXAMPLE
State 1 (p=0.4) State 2 (p=0.3) State 3 (p=0.3) A B 10 7.5 3 7.5 3 1

State 1 (p=0.4) State 2 (p=0.3) State 3 (p=0.3) B C 7.5 5 7.5 5 1 5

State 1 (p=0.4) State 2 (p=0.3) State 3 (p=0.3) C A 5 10 5 3 5 3

AN ILLUSTRATIVE EXAMPLE
State 1 (p=0.4) State 2 (p=0.3) State 3 (p=0.3) A B 10 7.5 3 7.5 3 1 Largest scope for regret in state 2 -> choose B

State 1 (p=0.4) State 2 (p=0.3) State 3 (p=0.3) B C 7.5 5 7.5 5 1 5

Largest scope for regret in state 3 -> choose C

State 1 (p=0.4) State 2 (p=0.3) State 3 (p=0.3) C A 5 10 5 3 5 3

Largest scope for regret in state 1 -> choose A

Overall preference pattern emerging B preferred to A, C preferred to B, BUT A preferred to C!?!

ILLUSTRATIVE EXAMPLE (FORMALLY)

Looking at scope for maximum regret is a shortcut Same results would be obtained applying the formula

A vs B -> 0.4(10-7.5+2.5-2.5)+0.3(3-7.5-4.5-4.5)+0.3(3-1+2-2)= -1.05

Choose B!

B vs C -> 0.4(7.5-5+2.5-2.5)+0.3(7.5-5+2.5-2.5)+0.3(1-5-4-4)= -1.85

Choose C!

C vs A -> 0.4(5-10-5-5)+0.3(5-3+2-2)+0.3(5-3+2-2)= -3.6

Choose A!

IMPLICATIONS OF REGRET THEORY

Assumes statistical independence between prospects

Write a unique matrix of state-contigent consequences

Able to incorporate common ration and common consequence effects

Not violations of axiomatic properties but implications of the model

ISSUES WITH REGRET THEORY

Preference relation is not necessarily transitive

Complicates the picture when we deal with more than 2 options no preference ordering Probabilities of the states of the world have to be known Theory works on assumptions of unobservable functions rather than behavioral axiom!

BUT represents the first challenge to the idea that conventional axioms represent the only acceptable basis of choice under uncertainty The first to discuss regret/rejoice in decision making

SUGGESTED READINGS
Loomes, Sugden, Regret theory: an alternative theory of rational choice under uncertainty, The Economic Journal Vol.92, No. 368 (1982) Corricelli et al, Regret and its avoidance: a neuroimaging study of choice behavior. Natural Neurosciences. 2005 Sep;8(9):1255-62. Epub 2005 Aug 7.