Exploring Political Disappointment

Disappointment is often identified as a pathology of modern politics; citizens expect much of politicians, yet governments are ill-equipped to deliver outcomes commensurate with those expectations. The net result is said to be a widespread disappointment; a negative balance between what citizens expect of government and what they perceive governments to deliver. Yet little attention has hitherto been paid to which kinds of citizens are particularly disappointed with politics, and why. This article offers one of the first empirical analyses of political disappointment. Drawing on a survey conducted in Britain, it provides a quantitative measure of political disappointment and explores its prevalence among citizens. It then considers which social groups might be more prone to disappointment than others. In particular, it explores whether certain groups are more disappointed by virtue of holding very high expectations of government or very low perceptions of government performance. The article concludes by considering what strategies might be open to policy makers to alleviate political disappointment

Disappointment Cycles

We propose a model of history dependent disappointment aversion (HDDA), allowing the attitude of a decision-maker (DM) towards disappointment at each stage of a T-stage lottery to evolve as a function of his history of disappointments and elations in prior stages. We establish an equivalence between the existence of an HDDA representation and two documented cognitive biases. First, the DM overreacts to news: after suffering a disappointment, the DM lowers his threshold for elation and becomes more risk averse; similarly, after an elating outcome, the DM raises his threshold for elation and becomes less risk averse. This makes disappointment more likely after elation and vice-versa, leading to statistically cycling risk attitudes. Second, the DM displays a primacy effect: early outcomes have the strongest effect on risk attitude. “Gray areas” in the elation-disappointment assignment are connected to optimism and pessimism in determining endogenous reference points.history dependent disappointment aversion, disappointment cycles, overreaction to news, primacy effect, endogenous reference dependence, optimism, pessimism

Optimal Buffer Stocks and Precautionary Savings with Disappointment Aversion

Developing countries use various risk reduction schemes, ranging from active management of buffer stocks and international reserves to commodity stabilization funds. The purpose of this paper is to reexamine the design of these schemes in a generalized expected utility maximization model where agents are disappointment averse. We derive first the generalized risk premium, showing that disappointment aversion increases the conventional risk premium by a term proportional to the standard deviation times the degree of disappointment aversion. Next, we show that disappointment aversion modifies the characteristics of precautionary saving. The concavity of the marginal utility continues to determine precautionary saving, but its effect is of a second order magnitude (proportional to the variance) compared to the first order effect (proportional to the standard deviation) induced by disappointment aversion. Hence, higher volatility increases the precautionary saving of a disappointment averse agent. This result applies even if the income process approaches a random walk. Finally, we reexamine the optimal size of buffer stocks, showing that disappointment aversion increases its size by a first order magnitude. A buffer stock that is rather small when agents are maximizing the conventional expected utility is rather large when agents are disappointment averse.

Spoiled holidays: Damages for disappointment or distress

Generally damages for disappointment or distress following a breach of contract will not be awarded to the innocent party under common law. However where the object of the contract is to provide relaxation or enjoyment, for example, an ocean cruise or a package holiday, damages may be recoverable for disappointment or distress. Damages of this type may also be awarded where there is a breach of the consumer protection provisions of the Trade Practices Act 1974 (Cth). This paper discusses a number of ‘spoiled’ holiday cases where damages were awarded for disappointment or distress. The liability of travel service providers under the Trade Practices Act 1974 (Cth) is also discussed

A Structural Analysis of Disappointment Aversion in a Real Effort Competition

We develop a novel computerized real effort task, based on moving sliders across a screen, to test experimentally whether agents are disappointment averse when they compete in a real effort sequential-move tournament. We predict that a disappointment averse agent, who is loss averse around her endogenous choice-acclimating expectations-based reference point, responds negatively to her rival's effort. We find significant evidence for this discouragement effect, and use the Method of Simulated Moments to estimate the strength of disappointment aversion on average and the heterogeneity in disappointment aversion across the population.Disappointment aversion, Loss aversion, Reference-dependent preferences, Reference point adjustment, Expectations, Tournament, Real effort experiment, Slider task

A Structural Analysis of Disappointment Aversion in a Real Effort Competition

We develop a novel computerized real effort task, based on moving sliders across a screen, to test experimentally whether agents are disappointment averse when they compete in a real effort sequential-move tournament. Our theory predicts that a disappointment averse agent, who is loss averse around her endogenous expectations-based reference point, responds negatively to her rival's effort. We find significant evidence for this discouragement effect, and use the Method of Simulated Moments to estimate the strength of disappointment aversion on average and the heterogeneity in disappointment aversion across the population.disappointment aversion, loss aversion, reference-dependent preferences, reference point adjustment, expectations, tournament, real effort experiment, slider task

Dynamic Disappointment Aversion: Don't Tell Me Anything Until You Know For Sure

We show that for a disappointment-averse decision maker, splitting a lottery into several stages reduces its value. To do this, we extend Gul.s (1991) model of disappointment aversion into a dynamic setting while keeping its basic characteristics intact. The result depends solely on the sign of the coefficient of disappointment aversion. It can help explain why people often buy periodic insurance for moderately priced objects, such as electrical appliances and cellular phones, at much more than the actuarially fair rate.Disappointment aversion, recursive preferences, compound lotteries

Optimal choice and beliefs with ex ante savoring and ex post disappointment

We propose a new decision criterion under risk in which people extract both utility from anticipatory feelings ex ante and disutility from disappointment ex post. The decision maker chooses his degree of optimism, given that more optimism raises both the utility of ex ante feelings and the risk of disappointment ex post. We characterize the optimal beliefs and the preferences under risk generated by this mental process and apply this criterion to a simple portfolio choice/insurance problem. We show that these preferences are consistent with the preference reversal in the Allais’ paradoxes and predict that the decision maker takes on less risk compared to an expected utility maximizer. This speaks to the equity premium puzzle and to the preference for low deductibles in insurance contracts. Keywords: endogenous beliefs, anticipatory feeling, disappointment, optimism, decision under risk, portfolio allocation