Regret and regulation
Journal
GENEVA Risk and Insurance Review
Journal Volume
39
Journal Issue
1
Pages
65-89
Date Issued
2014
Author(s)
Abstract
We analyse the welfare effect of governmental regulation for individuals who consider anticipated regret in their decision-making process. Although governmental policies by directing choice, distort individual decisions in the private market, they can alleviate individuals' pain associated with the feeling of regret. We analyse this trade-off and provide conditions under which the implied reduction of regret justifies regulation. Furthermore, we demonstrate our findings on tax deduction for non-insured losses, a well-studied social policy in insurance. Last, we consider heterogenous individuals and alternative social welfare functions and show that our results hold in these extended settings. ? 2014 The International Association for the Study of Insurance Economics.
Subjects
insurance demand
regret
regulation
tax deduction
Type
journal article
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