Foregone Option Research Articles

The effects of superior outcome of the foregone option on the relationship between responsibility and regret

The effects of superior outcome of the foregone option on the relationship between responsibility and regret

Regret theory and risk attitudes

We examine risk attitudes under regret theory and derive analytical expressions for two components—the resolution and regret premiums—of the risk premium under regret theory. We posit that regret-averse decision makers are risk seeking (resp., risk averse) for low (resp., high) probabilities of gains and that feedback concerning the foregone option reinforces risk attitudes. We test these hypotheses experimentally and estimate empirically both the resolution premium and the regret premium. Our results confirm the predominance of regret aversion but not the risk attitudes predicted by regret theory; they also clarify how feedback affects attitudes toward both risk and regret.

Eyes on the Prize? Evidence of Diminishing Attention to Experienced and Foregone Outcomes in Repeated Experiential Choice

AbstractRecently, there has been increased interest in decisions‐from‐experience (where decision makers learn from observing the outcomes of previous choices), which provide valuable insights into the learning and preference construction processes underlying many daily decisions. Several process models have been developed to capture these processes, and while such models often fit the data well, many assume that the decision maker is a vigilant observer, processing each outcome. In two studies, we provide a critical test of this assumption using eye tracking to record directed visual attention when participants choose repeatedly among two options, each time being shown the outcome for their chosen option and for the foregone option. Consistently, we find that the vigilance assumption is not supported, with decision makers often not attending to outcome information. Moreover, (in)attention to outcomes is predictable, with vigilance decreasing as more choices are made, and being greater for obtained than for foregone outcomes, and when options deliver only gains as opposed to losses or a mixture of gains and losses. Furthermore, we find that this variation in attentional allocation plays a central role in the apparent indecisiveness (inconsistency) in choice, with increased attention to foregone outcomes predicting switches to that option on the next choice. Together, these findings highlight the value of eye tracking in investigations of decisions‐from‐experience, providing novel insight into the cognitive processes underlying them. Copyright © 2015 John Wiley & Sons, Ltd.

You are (not only) what you choose: A self-expression account of post-choice dissonance

After making a difficult choice people reduce dissonance by increasing liking for the chosen option and decreasing liking for the foregone option—an effect known as the “spreading-of-alternatives” (SOA). We suggest that this effect is partly driven by self-expression motivation. While choice is one act of self-expression, it is certainly not the only means individuals can use to express themselves. However, in the experimental settings used so far to examine the SOA effect, choice has always been the exclusive self-expression means. If the SOA effect is indeed partly driven by self-expression motivation, then providing additional means of self-expression should mitigate the SOA following choice. In two experiments we provided participants with the prospect of opinion voicing as an alternative means of self-expression and found that doing so reduced the SOA. We interpret this finding as evidence that post-choice dissonance is contingent upon the availability of self-expression means. Implications about choice and cognitive dissonance theory, as well as practical implications are discussed.

The Effects of Personal Agency on Regret

ABSTRACTIn this paper, we examine the role of personal agency as a key antecedent of regret that individuals experience when the outcome of their decision is unfavorable. In contrast to previous research that documents its exacerbating role, we find that personal agency mitigates regret under certain circumstances. A series of experimental studies show that personal responsibility for the decision may attenuate subjective perceptions of the extent of failure and mitigate regret. However, when the superior outcome of the foregone option is known and the failure of the chosen option is irreversible, personal agency may amplify regret. We also find that subjective failure perceptions mediate the relationship between personal agency and regret levels. Copyright © 2012 John Wiley & Sons, Ltd.

Counterfactual Seeking

Decision makers faced with an opportunity to learn the outcome of a foregone alternative must balance anticipated regret, should that information be unfavorable, with the potential benefits of this information in reducing experienced regret. Counterfactual seeking, the choice to learn more about foregone alternatives, may be a functional, regret-regulating strategy for individuals already experiencing regret. Counterfactual seeking increases in response to dissatisfying outcomes (Studies 1 and 2). Counterfactual seeking is generally able to reduce dissatisfaction (Study 2), regardless of whether individuals personally chose to view this information or were randomly assigned to do so (Study 3). Moreover, both imaginative (vs. factual) thoughts about the foregone option and upward (vs. downward) counterfactual thoughts play a role in this improvement in satisfaction (Study 4). Regret thus has a complex influence in how individuals engage with counterfactual information.

Financial versus operative hedging of currency risk

Corporate risk management may employ financial or operative means to reduce the exposure to unexpected currency fluctuations. This article utilizes a real options framework to establish that operative hedging through the creation of operational flexibility represents a strategic complement to any variance-minimizing financial hedge. In addition, operational flexibility creates an asymmetric exposure profile and, as a result, alters the composition of the financial hedge portfolio. It alters the number of symmetric hedge contracts employed as well as their contractual rate and provides an economic argument for the use of (exotic) currency options. Operational flexibility acts as a value driver and may therefore be utilized, independent of its usefulness for risk management. The analysis further shows that operative hedging entails an implicit opportunity cost in the form of foregone option value.

Strategic Entry, Rent-Seeking and Transfers

In this paper, we consider strategic entry decisions in a two-player political transfer contest, i.e., the prize is a transfer from one lobby group to another. The size of the transfer depends on the lobbying effort of the political active lobby groups. We show that the entry decision involves a trade-off between an influence loss and a strategic gain. The influence loss is related to the value of the foregone option to influence policymaking. The strategic gain is related to the strategic behavior of the competitor. The existence of symmetric equilibria in which both lobby groups enter the contest and asymmetric equilibria in which only one lobby group enters is proved. In the latter type of equilibrium, rent-seeking expenditures are substantially reduced, and the strategic behavior of the active lobby group acts as a barrier to entry by rewarding the competitor for staying out of the contest.

Probability of Regret: Anticipation of Uncertainty Resolution in Choice

In choice between uncertain options, uncertainty may be eventually resolved for all options, or just for the chosen option. The findings described here demonstrate that preference between uncertain options is systematically affected by expectations concerning uncertainty resolution: Prospects which are less likely to yield worse outcome than the alternative are selected more often when all options are to be resolved (complete resolution). Two experiments examined choice between statistically independent lotteries for which the chances of being worse off with the low-risk alternative were nearly as high, or higher than the chances of being worse-off with the high-risk alternative. For these gamble pairs it was found that subjects who expected complete resolution chose the high-risk high-gain option more often than subjects who expected only their selected gamble to be resolved. A third experiment suggests that the preference changes due to resolution are related to the probability of the low-risk gamble yielding the worse obtained outcome. The results are interpreted as compatible with the hypothesis that in choosing between uncertain options, people are more inclined to compare outcomes per states of the world if they expect to learn what would have happened with each option. In those cases, the outcome of a foregone option is more likely to serve as a salient comparison point for evaluating the outcome of the selected option. An alternative explanation is also discussed.

Outcome Knowledge, Regret, and Omission Bias

Subjects made or evaluated decisions in hypothetical scenarios. We manipulated knowledge about the outcome and act vs omission in four cases. In case 1 (production processes), acts (changing the process) were considered better than omissions when the decision maker did not know the outcome or knew that it was better than the status quo. Acts were considered worse than omissions once the decision maker learned that the foregone option would have led to an even better outcome. In case 2 (medical treatment), act vs omission again interacted with gain vs loss (relative to the status quo) unless the outcome of the foregone option was known, in which case act vs omission interacted with better vs worse (of the two options). In case 3 (fetal testing), subjects tolerated less risk of miscarriage when a potential for regret was present (because the test with the risk of miscarriage, although better, might miss disorders that another test would detect). This effect was greater for actions than omissions. In case 4 (vaccination), subjects showed less tolerance of vaccine risk when the decision maker would know about the outcome of vaccination or nonvaccination. Thus, the bias toward omission (not vaccinating) is greater when potential regret is present, and potential regret is greater when knowledge of outcomes is expected.