Comparison of the production behavior of regret-averse and purely risk-averse firms
AbstractPrevious studies focused on the comparison of the optimal output levels of regret- averse firms under uncertainty and firms under certainty. This paper extends the theory by further investigating the effects of regret-aversion on production. We compare the optimal output levels of regret-averse firms with purely risk- averse firms under uncertainty and firms under certainty. We first show that the linear-regret firms will surely produce more than their purely risk-averse counterparts and surely produce less than firms under certainty. Thereafter, we give sufficient conditions to ensure the regret-averse firms to produce more than the purely risk-averse counterparts and study the comparative statics of the optimal production. We also develop properties of regret-aversion on production.
Keywords Production, regret aversion, risk aversion, uncertainty
How to Cite
Guo, X., & Wong, W. (2019). Comparison of the production behavior of regret-averse and purely risk-averse firms. Estudios de Economía, 46(2), 157-161. Retrieved from https://estudiosdeeconomia.uchile.cl/index.php/EDE/article/view/55181/59673