pu Consequences of Regret Aversion : Effects of Expected Feedback on Risky Decision Making

Previous research has considered the question of how anticipated regret affects risky decision making. Several studies have shown that anticipated regret forces participants towards the safe option, showing risk-aversion. We argue that these results are due to the previous confounding of the riskiness of the options with the feedback received. Our design unconfounds these factors, and we predict that participants will always tend to make regret-minimizing choices (rather than risk-minimizing choices). We present three experiments using a “choices between equally valued alternatives” paradigm. In these experiments we manipulate whether the risky or safe gamble is the regret-minimizing choice by manipulating which gamble(s) will be resolved. As predicted, participants tend to choose the regret-minimizing gamble in both gains and losses and in both relatively high risk and relatively low risk pairs of gambles. We consider the implications of these results for the role of regret in choice behavior. © 1996 Academic Press, Inc. If a decision turns out badly, we often kick ourselves for not having done something different. This is especially true if we learn that the alternative course of action would have resulted in a more favorable outcome. In these situations we experience the feeling of regret. “Regret is a more or less painful cognitive and emotional state of feeling sorry for misfortunes, limitations, losses, transgressions, shortcomings or mistakes” (Landman, 1993, p. 36). Regret can affect people in two different ways: First, it can lead people to try to undo the effects of their regretted choice, after the decision is made (see, e.g., Gilovich &Medvec, 1995). Second, it can affect people’s choices before the decision is made, when they anticipate the regret they may feel later (if the decision turns out badly) (see, e.g., Bell, 1982; Janis & Mann, 1977; Loomes & Sugden, 1982; Sage & White, 1983; Savage, 1951). Bell (1982) and Loomes and Sugden (1982) explicitly incorporated the anticipatory aspects of regret in their model of decision making, called “regret theory. ” Our paper also focuses on the effect of the anticipation of regret on later choices. Regret theory differs from classical, prospect-based theories of decision making, which assume that the expected utility of a choice option depends only upon the possible pain and pleasure associated with the outcomes of that particular option (weighed by their probability of occurrence). In regret theory, an action-based theory, the utility of a choice option additionally depends on the feelings evoked by the outcomes of rejected options. Regret theory rests on two fundamental assumptions (Loomes & Sugden, 1982). The first assumption holds that people compare the actual outcome with what the outcome would have been, had a Preliminary data of this paper were presented at the SPUDM-15 conference, held from August 20–25, 1995, in Jerusalem, Israel. The work reported in this article was supported in part by the Grants R 56-405 and SIR 12-1902, from the Netherlands Organisation for Scientific Research (NWO) awarded to Marcel Zeelenberg. We thank Eric van Dijk for his valuable comments during various stages of this project, and Tom Postmes and Kim van Baaren for their help with Experiment 1. We also thank Jonathan Baron, Steve Jones, Rick Larrick, Mary Frances Luce, Tony Manstead, Dave Messick, Ilana Ritov, Marlies Stouthard, René Zeelenberg, and two anonymous reviewers for valuable comments on a earlier version of this manuscript. Correspondence and reprint requests should be addressed to Marcel Zeelenberg, Department of Social Psychology, University of Amsterdam, Roetersstraat 15, 1018 WB Amsterdam, The Netherlands. E-mail: sp zeelenberg@macmail.psy. uva.nl. ORGANIZATIONAL BEHAVIOR AND HUMAN DECISION PROCESSES Vol. 65, No. 2, February, pp. 148–158, 1996 ARTICLE NO. 0013