Policy Making for Regret Averse Agents
2023
Manouchehrabadi, Behrang | Aramyan, Lusine | van Wagenberg, Coen
Policy interventions require understanding the behavior of players and pre dicting how they respond to the interventions to prevent economic losses. Thus, when designing policy interventions, it is imperative to incorporate insights from behavioral sciences such as behavioral biases into account. In this study, we analyze a policy design problem that aims to foster the adoption of a sustain able technology by regret averse decision makers. The sustainable technology involves a potentially large loss that deters regret averse decision makers, but is more welfare-enhancing compared to the traditional technology. We show how the policy should be designed when the decision makers are regret averse. The main insight is that regret aversion might hinder the adoption of the sustainable technologies when it is welfare enhancing and so, there is room for policies that induce the decision makers to adopt sustainable technologies. We show that re gret aversion increases the burden of uncertainty, i.e., the more regret averse the decision makers, the higher the cost of the policy that is required to induce them to adopt the sustainable technology. However, once opting for the sustainable technology, incentive to exert costly effort is not affected by regret aversion.
Mostrar más [+] Menos [-]Palabras clave de AGROVOC
Información bibliográfica
Editorial Institute of Agricultural Economics, Belgrade, Serbia
Este registro bibliográfico ha sido proporcionado por Matica Srpska Library