Regret Theory An Alternative Theory of Rational Choice Under Uncertainty (pdf, 1982) Oct 12 2017 10:46 languageMoneyScience
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Graham Loomes and Robert Sugden
The Economic Journal, Volume 92, Issue 368 (Dec., 1982)
The main body of current economic analysis of choice under uncertainty is built upon a small number of basic axioms, formulated in slightly different ways by von Neumann and Morgenstern (1947), Savage (1954) and others. These Axioms are widely believed to represent the essence of rational behaviour under uncertainty. However it is well known that people behave in ways that sytematically violate these axioms.
We shall initially focus upon a paper by Kahneman and Tversky (1970) which presents extensive evidence of such behaviour. Kahneman and Tversky offer a theory which they call 'prospect theory', to explain their observations. We shall offer an alternative theory which is much simpler than prospect theory and which, we believe, has greater appeal to intuition.