Wednesday, March 09, 2005

Ex Post Regret and Unavoidable Information

I first learned about this concept from my Derivatives Professor, Professor Tim Crack. The term is typically used in finance topics but it can be applied easily to almost every choice we make.

Ex Post Regret is the regret you feel only AFTER receiving additional information that informs you the decision you have made has made you worse off than if you were to have selected a different option.

It's fascinating how a single small piece of information can effect us. Imagine buying a pair of shoes. After some time passes after making the purchase you remain fairly satisfied with it. You then find out from a friend that the shoe was marked down by 50% the day after you buy it. You would then feel upset that you didn't wait an extra day to buy the shoes. If in fact the mark down did occur, yet you didn't receive the information that told you about it, the upsetting feeling would have never been realized.

[work in progress]

" ... In short, we know that people seek happiness and firms seek profits. We know that people can register psychological impulses called “pleasure” and “pain.” We know that firms can compare total revenue to total cost and ascertain whether or not they have earned a profit. But can we know whether or not someone has registered more pleasure from eating an apple than he would have registered from eating a pear, orange, or banana? Can we know whether or not Nike has earned higher profits by producing sneakers rather than loafers? In economic parlance, can we know whether or not someone has maximized utility or whether or not a firm has maximized profit? " -- "Ex ante and ex post: What Does Rod Stewart Really Know Now?" - Walter Block, Art Carden


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