This article deals with the rationality and functionality of the existence of regret and its influence on decision making. First, regret is defined as a negative, cognitively based emotion that we experience when realizing or imagining that our present situation would have been better had we acted differently. Next, it is discussed whether this experience can be considered rational and it is argued that rationality only applies to what we do with our regrets, not to the experience itself. Then, research (...) is reviewed showing that both the anticipation of future regret and the experience of retrospective regret influence behavior. The influence of anticipated regret can be considered rational as long as the decision maker can accurately predict the regret that may result from the decision. The influence of experienced regret cannot be considered rational, since decisions should be based on future outcomes, not historical ones. However, influence of experienced regret can be called functional since it may result in increased learning from our mistakes. (shrink)

Several decision rules, including the minimax regret rule, have been posited to suggest optimizing strategies for an individual when neither objective nor subjective probabilities can be associated to the various states of the world. These all share the shortcoming of focusing only on extreme outcomes. This paper suggests an alternative approach of ‘tempered regrets’ which may more closely replicate the decision process of individuals in those situations in which avoiding the worst outcome tempers the loss from not achieving the best (...) outcome. The assumption of total ignorance of the probabilities associated with the various states is maintained. Applications and illustrations from standard neoclassical theory are discussed. (shrink)