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Does Regret Explain Why People Search too Little? A Model of Sequential Search with Anticipated Regret and Rejoicing

By Zhiquan(darren Weng, John Kagel and David B


We re-examine the sequential search problem where sellers search for the best price from a known distribution. Existing theory predicts the optimal strategy to be a unique constant reservation price. However, experimental evidence to date has found that people generally "search too little " compared to the theoretical benchmarks. We argue the behavioral anomaly is an artifact of the truncated information structure of the sequential search problem that gives rise to asymmetric regret and rejoicing. Embedding the problem within a behavioral model incorporating both anticipated regret and rejoicing based on the regret theory of Loomes & Sugden (1982) and Bell (1982), we …nd: First, people search too little if and only if they are more sensitive to regret than to rejoicing. Second, if we revise the feedback structure of the search problem so that people expect to see what the price would have been had they continued to search (after they stop), search behaviors become observationally indistinguishable from the benchmarks. Moreover, these results are found to hold even when the price distribution becomes unknown. By building a dynamic structure between anticipated regret/rejoicing and experienced regret/rejoicing, our model explains why people sometimes exercise recall. An empirica

Topics: Key Words, Sequential search, Regret theory, Search too little, Recall, Experiment, Latent reservation price estimation
Year: 2009
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