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A Comparison of Regret Theory and Salience Theory for Decisions under Risk

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  • Fabian Herweg
  • Daniel Müller

Abstract

Two non-transitive theories to model decision making under risk are regret theory (Loomes and Sugden, 1982, 1987) and salience theory (Bordalo, Gennaioli, and Shleifer, 2012). While the psychological underpinning of these two approaches is different, the models share the assumption that within-state comparisons of outcomes across choice options are a key determinant of choice behavior. We investigate the overlap between these theories and show that original regret theory (Loomes and Sugden, 1982) is a special case of salience theory (Bordalo, Gennaioli, and Shleifer, 2012), which itself is a special case of generalized regret theory (Loomes and Sugden, 1987).

Suggested Citation

  • Fabian Herweg & Daniel Müller, 2019. "A Comparison of Regret Theory and Salience Theory for Decisions under Risk," CESifo Working Paper Series 7445, CESifo.
    • Handle: RePEc:ces:ceswps:_7445
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    More about this item

    Keywords

    choice under risk; regret theory; salience theory;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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