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 languageEnglish
Article numbere00156
JournalJournal of Economic Asymmetries
Volume21
Publication statusPublished - Jun 2020
Peer-reviewedYes

Keywords

Keywords

  • Production, Regret aversion, Risk aversion, Skewness