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Dynamic Regret Avoidance

Author

Listed:
  • Michele Fioretti
  • Alexander Vostroknutov
  • Giorgio Coricelli
Abstract
In a stock market experiment, we examine how regret avoidance influences the decision to sell an asset while its price changes over time. Participants know beforehand whether they will observe the future prices after they sell the asset or not. Without future prices, participants are affected only by regret about previously observed high prices (past regret), but when future prices are available, they also avoid regret about expected after-sale high prices (future regret). Moreover, as the relative sizes of past and future regret change, participants dynamically switch between them. This demonstrates how multiple reference points dynamically influence sales.

Suggested Citation

  • Michele Fioretti & Alexander Vostroknutov & Giorgio Coricelli, 2022. "Dynamic Regret Avoidance," American Economic Journal: Microeconomics, American Economic Association, vol. 14(1), pages 70-93, February.
    • Handle: RePEc:aea:aejmic:v:14:y:2022:i:1:p:70-93
    DOI: 10.1257/mic.20180260
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    2. Kawagoe, Toshiji & Takizawa, Hirokazu & Yamamori, Tetsuo, 2023. "Asymmetric volunteer's dilemma game: Theory and experiment," Games and Economic Behavior, Elsevier, vol. 142(C), pages 955-977.
    3. Rusch, Hannes & Vostroknutov, Alexander, 2024. "The evolution of personal standards into social norms," Research Memorandum 011, Maastricht University, Graduate School of Business and Economics (GSBE).
    4. Klimm, Felix & Kocher, Martin G. & Opitz, Timm & Schudy, Simeon, 2023. "Time pressure and regret in sequential search," Journal of Economic Behavior & Organization, Elsevier, vol. 206(C), pages 406-424.
    5. Yang, Ann Shawing, 2023. "Regret sensitivity and stock certificate loss reporting: Evidence from Taiwan," Finance Research Letters, Elsevier, vol. 58(PA).

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    More about this item

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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