Regret aversion and asymmetric price distribution
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Contributors
Abstract
This paper examines the economic asymmetries between a regret-averse firm and a risk-averse firm under price uncertainty. We show that the global and marginal effects of price uncertainty on production are both positive (negative) when regret aversion prevails if the random output price is asymmetrically distributed with positive (negative) skewness. In this case, high (low) output prices are much more likely to be seen than low (high) output prices. To minimize regret, the firm is induced to raise (lower) its output optimal level. The skewness of the price distribution as such plays a pivotal role in determining the regret-averse firm's production decision price uncertainty.
Details
Original language | English |
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Article number | e00156 |
Journal | Journal of Economic Asymmetries |
Volume | 21 |
Publication status | Published - Jun 2020 |
Peer-reviewed | Yes |
Keywords
ASJC Scopus subject areas
Keywords
- Production, Regret aversion, Risk aversion, Skewness