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More than an emotion: How does regret become a driver of rational decision making?
In uncertain situations, decision theory often needs to consider human emotional responses, among which regret is a common and significant emotion. This emotion is often felt after a fixed choice has been made, when information about the best course of action becomes available. According to regret avoidance theory, when individuals are faced with a decision, they anticipate regret and therefore incorporate into their choices the need to reduce or eliminate this disappointment. In such a context, regret is not just a negative emotion, but a powerful driving force that influences human behavior and decision-making.
Regret can serve as an important mechanism for us to learn from experience and affect our risk aversion.
The regret theory was first proposed by Graham Loomes, Robert Sugden, David E. Bell and Peter C. Fishburn in 1982. The theory takes into account the effect of expected regret when considering choices under uncertainty and requires the inclusion of a regret term in the utility function that is negatively correlated with the actual outcome and positively correlated with the best alternative outcome. This framework has led to the increasing attention given to feelings of regret in decision-making models in the fields of economics and psychology.
The concept of regret makes us rethink that in many cases, our behavior is not entirely based on rational calculations, but is strongly driven by emotional factors. Generally speaking, regret only occurs when we make a choice and then face the consequences, but anticipated regret can influence our choices before we make them. This is not just an emotional issue, but also a rational decision. important considerations.
Anticipated regret often leads people to choose a more conservative course of action when faced with uncertainty.
Some studies have shown that the effects of anticipated regret are significant in games such as auctions and lotteries. For example, in an experiment on auctions, when participants learned the winning bid, this information led them to price their bid higher than they would have otherwise because they did not want to face the regret of losing. Furthermore, whether in cash lottery or lottery payout options, regret emotions make individuals more inclined to choose those options that appear safer or more secure, thereby reducing the likelihood of facing anticipated regret.
It is also important to distinguish between regret: anticipated regret in the future and regret already experienced may have different impacts. Many people tend to underestimate the intensity of future regret. For example, many commuters believe that the regret they may face if they miss a train will vary with the time they miss it, but in reality, this is not entirely true. This means that in actual behavior, there is often an asymmetry between people’s expectations and actual experiences, which shakes their judgments based on rational calculations.
When people make decisions, they tend to over-anticipate the regret they will feel.
Beyond the traditional scenarios of auctions and lotteries, regret avoidance has also shown its influence in other areas, including financial investment strategies and risk management. In the regret-minimizing decision-making process, investors or decision makers will choose options that can protect their interests even in the worst case scenario, which is a rational behavior that weighs the potential for minimizing future regrets.
For example, a comparative analysis of investment portfolios showed that choosing investments that deliver consistent returns, even though one may miss out on higher returns at some point, can be effective in reducing regret. This suggests that the concept of regret is not only a reflection of emotion, but also a driving force for people to make rational choices.
Understanding how regret affects decision-making can help us develop better strategies and reduce the risk of facing regret.
Strategies to minimize regret are particularly important when faced with choices with uncertain outcomes. In the decision-making process of bureaucracies and corporate executives, considerations of regret often become an optimization suggestion, improving the quality of decisions by designing options that minimize the worst outcomes.
Reflecting on how regret affects our decision-making choices can not only help us make more informed choices, but also deepen our understanding of human behavior. Therefore, when we face moments that require critical decision-making, we might as well ask ourselves, can we really detach ourselves from emotions and make purely rational choices?
