Expectations and disappointment

Individuals do not behave according to the expected utility model, hence attempts to build more descriptive models of choice under risk.

by Philippe Delquie, Alessandra Cillo

Regret theory postulates that individuals evaluate the outcomes of two possible options by comparing them with each other, experiencing regret if they believe the outcome of the chosen option is inferior to the discarded one.

To avoid this regret, individuals incorporate it into their choice. Disappointment theory is based on a similar idea, but here the individual compares the outcome to what their expectations - if the outcome is not up to scratch, then they will be disappointed.

In this paper, published in Theory and Decision in May 2006, Philippe Delquié, Associate Professor of Decision Sciences at INSEAD, and doctoral student Alessandra Cillo develop a model of disappointment that compares the received outcome with other possible outcomes in a lottery situation.

In this way, rather than focusing on a particular reference point to measure disappointment or elation, the authors allow for the situation where individuals compare what they receive with what they don't, rather than with what they were expecting. This model incorporates the dual nature of response, where the individual may be disappointed with respect to outcomes perceived as superior, but elated with respect to others perceived as inferior.

The authors compare their model with previous ones to determine if the new model can be used to explain earlier results. They note that their model is qualitatively closer to the regret than to the disappointment models. For two-outcome choices, the new model can also be applied to the Allais Paradox and related certainty effects. Other theories, such as the stochastic dominance principle and rank-dependent utility are also examined in the light of the new model.

Delquié and Cillo's model provides a psychological explanation for the rank-dependent representation of preferences, a desire to protect oneself against disappointment.

Philippe Delquie, Alessandra Cillo
Theory and Decision, May 2006

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