Regret Theory with General Choice Sets

The regret theory of choice under uncertainty proposed by Loomes and Sugden has performed well in explaining and predicting violations of Expected Utility theory. the original version of the model was confined to pairwise choices, which limited its usefulness as an economic theory of choice. Axioms for a more general form of regret theory have been proposed by Loomes and Sugden. In this paper, it is shown that a simple non-manipulability requirement is sufficient to characterize the functional form for regret theory with general choice sets. The stochastic dominance and comparative static properties of the model are outlined. A number of special cases are derived in which regret theory is equivalent to other well–known theories of choice under uncertainty. I would like to thank Graham Loomes, Robert Sugden, Peter Wakker and Nancy Wallace for helpful comments and criticism. Regret Theory with General Choice Sets