Regret theory and the competitive firm: A comment |
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| Affiliation: | 1. School of Statistics, Renmin University of China, Beijing, China;2. College of Economics and Management, Nanjing University of Aeronautics and Astronautics, Nanjing, China;3. Department of Mathematics, Hong Kong Baptist University, Hong Kong, China;4. Department of Biostatistics Yale School of Public Health, New Haven, USA;5. Department of Mathematics, Southeast University, Nanjing, China;1. School of Electronics & Computer Science, University of Southampton, UK;2. Department of Informatics, Kings College London, UK;3. Departments of Computing and Electrical and Electronic Engineering, Imperial College London, UK;1. College of Economics and Management, Nanjing University of Aeronautics and Astronautics, No169 Shengtai West Road, Nanjing 211106, Jiangsu China;2. Linyi University, Linyi 276000, Shandong, China;3. Shandong Urban Constructional College, Jinan 250103, Shandong, China;1. Czech National Bank, Prague, Czech Republic;2. European Central Bank, Frankfurt, Germany;3. CERGE-EI, a joint workplace of Charles University and the Economics Institute of the Academy of Sciences of the Czech Republic, Prague, Czech Republic;4. University of Economics, Prague, Czech Republic |
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| Abstract: | In a recent paper, Wong [Wong, K. P. (2014), Regret theory and the competitive firm. Economic Modelling, 36, 172–175.] develops a model to examine the production behavior of a regret averse competitive firm. Wong discusses the sufficient condition to ensure the conventional result that the optimal output level under uncertainty is less than that under certainty hold. Our contributions in this note are two-fold. Firstly, we point out that Wong's condition in terms of the first order derivatives of the utility function and the regret function is actually not sufficient. Secondly and more importantly, we show that a sufficient condition should be in terms of the relatively increase rate of the first order derivatives of the two functions. That's, it's the ratio of the risk aversion and regret aversion degree that matters. Our proposed condition requests that the firm should be not too regret averse. |
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