Regret, Pride, and the Disposition Effect

Muermann, Alexander; Volkman, Jacqueline M.

doi:10.2139/ssrn.930675

Cited by 57 publications

(38 citation statements)

References 32 publications

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“…Hedging behaviour has also been shown to be due to regret [19]. Regret has also been found to explain disposition effect, where investors may sell winning stocks and hold losing ones [17].…”

Section: Decision Criteriamentioning

confidence: 98%

“…Although regret has not been analyzed in decision making for road construction in particular, as well as expected traffic flow and safety, it has been analyzed for its role in medical decision-making [14,15]. In terms of construction cost, regret theory has been incorporated into models of asset pricing and portfolio choice by Gollier and Salanié [16] and Muermann and Volkman [17].…”

Section: Decision Criteriamentioning

confidence: 99%

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Regret model for resilience in road design

Galadari¹

2016

WIT Transactions on Ecology and the Environment

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The goal of this study is to identify if regret theory may be used to decide between different road design alternatives to ensure the resilience of the design given future uncertainties. It formulates a matrix for the regret factor in the decision-making process. There are different, and often conflicting, parameters and variables that are taken into account whenever different road designs are considered. This paper uses an example of five variables and constraints such as planning (i.e. optimal usage of land use), traffic flow, traffic safety (i.e. to ensure low crash rates), along with constraints such as construction economics and time to completion. It is assumed that each variable may have its own performance indicator based on its own modelling techniques and each is weighed based on the objectives of the decision-makers. However, each model may have inherent uncertainties that may propagate in a multi-attribute decision system. The proposed theoretical framework allows the system to analyze different roads construction alternatives to aid in decision-making. This study does not induce a specific strategy to be utilized by decision-makers, but provides a systematic methodology to help making decisions once an objective-driven strategy has been established. Using a multi-attribute matrix, the framework considers how to practically use regret theory in deciding between different road designs given the uncertainties inherent in each model. It is found that the usage of regret theory can be beneficial. However, furthermore research needs to be conducted to illustrate how this framework would be utilized in a real-world scenario and how it may impact decision in road designs.

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Section: Decision Criteriamentioning

confidence: 98%

Section: Decision Criteriamentioning

confidence: 99%

Regret model for resilience in road design

Galadari¹

2016

WIT Transactions on Ecology and the Environment

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“…7 Although Shefrin and Statman (1985) support roles for avoiding regret and seeking pride (Muermann and Volkmann (2006)), the role of emotions is not fully explored and leads to an unclear explanation, especially in the case of gains, or even results in behavioral patterns that are inconsistent with the Disposition Effect (see Shefrin and Statman (1985), Shefrin (2008)). O'Curry Fogel and Berry (2006) discussed the potential role of regret and pride in the context of losers, but without separating regret and disappointment.…”

Section: Prospect Theory: Fit For Finance? a Brief Reflection Of Relementioning

confidence: 99%

Taming Models of Prospect Theory in the Wild? Estimation of Vlcek and Hens (2011)

2016

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Abstract. Shortcomings revealed by experimental and theoretical researchers such as Allais (1953), Rabin (2000) and Rabin and Thaler (2001) that put the classical expected utility paradigm von Neumann and Morgenstern (1947) into question, led to the proposition of alternative and generalized utility functions, that intend to improve descriptive accuracy. The perhaps best known among those alternative preference theories, that has attracted much popularity among economists, is the so called Prospect Theory by Kahneman and Tversky (1979) and Tversky and Kahneman (1992). Its distinctive features, governed by its set of risk parameters such as risk sensitivity, loss aversion and decision weights, stimulated a series of economic and financial models that build on the previously estimated parameter values by Tversky and Kahneman (1992) to analyze and explain various empirical phenomena for which expected utility doesn't seem to offer a satisfying rationale. In this paper, after providing a brief overview of the relevant literature, we take a closer look at one of those papers, the trading model of Vlcek and Hens (2011) and analyze its implications on Prospect Theory parameters using an adopted maximum likelihood approach for a dataset of 656 individual investors from a large German discount brokerage firm. We find evidence that investors in our dataset are moderately averse to large losses and display high risk sensitivity, supporting the main assumptions of Prospect Theory.

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“…To explain the disposition effect, Dhar and Zhu (2006) assess the effects of individual differences, and Muermann and Volkman (2007) developed a theoretical portfolio choice model that incorporates anticipated regret and pride. Their model reflects Shefrin and Statman's (1985) proposal that investors may take pride in their ability to make profits through their investments, which implies they would be likely to sell winners.…”

mentioning

confidence: 99%

“…Summers and Duxbury (2012) find that the mere experience of gains or losses, without being responsible for the outcome, was not sufficient to generate the disposition effect. In financial modeling, Muermann and Volkman (2007) include preferences of anticipated regret and pride in their choice model to predict the disposition effect. It appears that the sense of responsibility is a prerequisite to predict individuals' subsequent decisions.…”

mentioning

confidence: 99%

The Effect of Anticipated and Experienced Regret and Pride on Investors’ Future Selling Decisions

Lee,

Kräussl,

Paas

2009

SSRN Journal

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Regret, Pride, and the Disposition Effect

Cited by 57 publications

References 32 publications

Regret model for resilience in road design

Regret model for resilience in road design

Taming Models of Prospect Theory in the Wild? Estimation of Vlcek and Hens (2011)

The Effect of Anticipated and Experienced Regret and Pride on Investors’ Future Selling Decisions

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