A comparison of regret theory and salience theory for decisions under risk
2021
Abstract Two non-transitive theories to model decision making under risk are regret theory ( Loomes and Sugden, 1982 , Loomes and Sugden, 1987 ) and salience theory ( Bordalo, Gennaioli, and Shleifer, 2012 ). While the psychological underpinning of these two approaches is different, the models share the assumption that within-state comparisons of outcomes across choice options are a key determinant of choice behavior. We investigate the overlap between these theories and show that original regret theory ( Loomes and Sugden, 1982 ) is a special case of salience theory ( Bordalo, Gennaioli, and Shleifer, 2012 ), which itself is a special case of generalized regret theory ( Loomes and Sugden, 1987 ).
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