2006
DOI: 10.1016/j.insmatheco.2006.02.006
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Regret, portfolio choice, and guarantees in defined contribution schemes

Abstract: We model how asset allocation decisions in a defined contribution (DC) pension plan might vary with participants' attitudes about risk and regret. We show that anticipated disutility from regret can have a potent effect on investment choices. Compared with a risk-averse investor, the investor who takes regret into account will hold more stock when the equity premium is low but less stock when the equity premium is high. We also assess how regret can influence a DC plan participant's view of rate-of-return guar… Show more

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Cited by 79 publications
(34 citation statements)
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“…The regret-aversion model is an important model for Behavioral Finance; for example, it can be used for investors to make decision in their portfolio investment (Barberis et al 2006;Muermann et al 2006). It can be used in many other areas, as well, for example, options (Sarver 2008) and hedging (Egozcue et al 2015;Guo et al 2015;Guo and Wong 2019).…”
Section: Other Behavioral Modelsmentioning
confidence: 99%
“…The regret-aversion model is an important model for Behavioral Finance; for example, it can be used for investors to make decision in their portfolio investment (Barberis et al 2006;Muermann et al 2006). It can be used in many other areas, as well, for example, options (Sarver 2008) and hedging (Egozcue et al 2015;Guo et al 2015;Guo and Wong 2019).…”
Section: Other Behavioral Modelsmentioning
confidence: 99%
“…We follow , Wong (2014), and others by using their notations. Braun and Muermann (2004) and Muermann et al (2006) also use similar notations.…”
Section: Model Settingmentioning
confidence: 99%
“…In traditional economic theory of competitive firms when output price is uncertain (Sandmo, 1971;Broll, 1992;Viaene and Zilcha, 1998), many studies consider purely risk-averse firms without taking the regret-averse preference into consideration. Investigating production behavior of a competitive firm under both risk-aversion and also regret-aversion, and Wong (2014) use the additive separable utility function developed by both Braun and Muermann (2004) and Muermann et al (2006). By doing so, and Wong (2014) provide sufficient conditions under which the optimal output level of the regret-averse firm under uncertainty is less than that under certainty.…”
Section: Introductionmentioning
confidence: 99%
“…Zeelenberg et al, 1996), regret theory has been the subject of finance and investment literature: Braun and Muermann (2004) apply regret to insurance decisions and thereby explain the observed preference for low deductibles. Gollier and Salanié (2006) use a multiplicative, concave utility function in an Arrow-Debreu economy and Muermann et al (2006) use defined contribution pension schemes to incorporate regret into optimal asset allocation. Muermann and Volkman (2007) show that regret and pride can explain the disposition effect in a dynamic setting.…”
Section: Related Literature 21 Literature On Regretmentioning
confidence: 99%