Regret (decision theory)

In decision theory, regret aversion (or anticipated regret) describes how the human emotional response of regret can influence decision-making under uncertainty. When individuals make choices without complete information, they often experience regret if they later discover that a different choice would have produced a better outcome. This regret can be quantified as the difference in value between the actual decision made and what would have been the optimal decision in hindsight.

Unlike traditional models that consider regret as merely a post-decision emotional response, the theory of regret aversion proposes that decision-makers actively anticipate potential future regret and incorporate this anticipation into their current decision-making process. This anticipation can lead individuals to make choices specifically designed to minimize the possibility of experiencing regret later, even if those choices are not optimal from a purely probabilistic expected-value perspective.

Regret is a powerful negative emotion with significant social and reputational implications, playing a central role in how humans learn from experience and in the psychology of risk aversion. The conscious anticipation of regret creates a feedback loop that elevates regret from being simply an emotional reaction—often modeled as mere human behavior—into a key factor in rational choice behavior that can be formally modeled in decision theory.

This anticipatory mechanism helps explain various observed decision patterns that deviate from standard expected utility theory, including status quo bias, inaction inertia, and the tendency to avoid decisions that might lead to easily imagined counterfactual scenarios where a better outcome would have occurred.