We present a new behavioral foundation for regret theory. The central axiom of this foundation — trade-off consistency — renders regret theory observable at the individual level and makes our foundation consistent with the existing measurement method. For the first time, our behavioral foundation allows deriving a continuous regret theory representation and separating utility from regret.
Finally, the axioms in the behavioral foundation clarify that regret theory minimally deviates from expected utility by relaxing transitivity only.
Awards: Finalist, 2014, INFORMS Decision Analysis Society Student Paper Award
[2] Regret Theory and Risk Attitudes
We examine risk attitudes under regret theory and derive analytical expressions for two components - the resolution and regret premiums - of the risk premium under regret theory. We posit that regret-averse decision makers are risk seeking (resp., risk averse) for low (resp., high) probabilities of gains and that feedback concerning the forgone option reinforces risk attitudes. We test these hypotheses experimentally and estimate empirically both the resolution premium and the regret premium. Our results confirm the predominance of regret aversion but not the risk attitudes predicted by regret theory; they also clarify how feedback affects attitudes toward both risk and regret.
[3] Risk and time preferences interaction: An experimental measurement
We experimentally characterize and measure the interaction between risk and time preferences. Our results indicate that risk and time preferences are intertwined.
We find that decision makers are insensitive to time delay for small probabilities of gains, but become progressively more sensitive to time delay as the probability of
gain increases. We compare the fit of existing decision models that capture risk and time preferences. Our results indicate that the models which allow for probabilitytime interaction and capture magnitude effect fit the data better. We also show that
accounting for risk-time preferences interaction leads to lower estimated discount rates.
[4] Raising the Temperature in the Tropics: Gradual Targets Promote Energy Conservation Habits
In tropical countries, ACs account for a significant fraction of energy consumption. Increasing the AC temperature can lead to substantial reduction in energy use. We conduct a randomized control trial (RCT) in which people are financially rewarded for setting a higher AC temperature than usual and investigate whether people can adapt to the higher temperature.
Along with a no-incentive control condition, two treatments were conducted over two time periods. In treatment 1, subjects were incentivized to raise the temperature gradually, by 1°C in period 1, and an additional 1°C in period 2. In treatment 2, subjects were only incentivized to abruptly increase the temperature by 2°C in period 2.
The treatment with gradual temperature targets worked better in maintaining the higher AC temperature during the intervention and post-intervention periods. Energy usage data confirmed that these higher AC temperatures translated into lower energy consumption.