This paper is a contribution to regret theory, which we generalize in two ways. Since the intensity of regret depends on the information the decision-maker has about the results of the foregone strategies (feedback), we build a model of choice which accommodates any feedback structure. We also show that the reference point, which characterizes the regret utility function introduced by Quiggin (1994), does not always represent an anticipated feeling of regret. It can also correspond to another negative feeling related to the act of choosing, which we call psychological opportunity cost (POC), borne at the very moment of choosing. We find behavioral deviations from the predictions of the classical Expected Utility Theory. We obtain correlation loving, greater reluctance to take on risk, and information avoidance at decision time. Our model also offers a theoretical framework for experimental studies about inaction inertia.

We consider a two-tier model of monetary policy where the central banker is both subject to the explicit in uence of elected political principals through contracts and the implicit in uence of interest groups willing to capture monetary policy. We analyze the impact of granting independence to the central banker on the scope for capture and the agency costs of delegating the monetary policy to a central banker. Political independence increases those agency costs but signiÿcantly stabilizes the politically induced uctuations of in ation and improves ex ante social welfare.

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