Regret theory under fear of the unknown

TL;DR

This paper extends regret theory to include fear of the unknown, supported by experiments and applied to medical decisions, revealing how unknown outcomes influence decision preferences.

Contribution

It introduces a modified regret theory incorporating a fear function for unknown outcomes, with experimental validation and applications to medical decision making.

Findings

Fear of the unknown affects decision preferences.

The modified regret model predicts preference reversals.

Application shows impact on medical risk choices.

Abstract

It is common to encounter the situation with uncertainty for decision makers (DMs) in dealing with a complex decision making problem. The existing evidence shows that people usually fear the extreme uncertainty named as the unknown. This paper reports the modified version of the typical regret theory by considering the fear experienced by DMs for the unknown. Based on the responses of undergraduate students to the hypothetical choice problems with an unknown outcome, some experimental evidences are observed and analyzed. The framework of the modified regret theory is established by considering the effects of an unknown outcome. A fear function is equipped and some implications are proved. The behavioral foundation of the modified regret theory is further developed by modifying the axiomatic properties of the existing one as those based on the utility function; and it is recalled as the utility-based behavioral foundation for convenience. The application to the medical decision making with an unknown risk is studied and the effects of the fear function are investigated. The observations reveal that the existence of an unknown outcome could enhance, impede or reverse the preference relation of people in a choice problem, which can be predicted by the developed regret theory.