Regret Principle

The regret principle scrutinizes decision options for the loss that a decision made will cause if things turn out in such a way that another option would have been the optimal one. In this sense, when applying the regret principle to each decision option, one will evaluate the potential loss relative to the outcome under each of the other options that would occur if choosing one of these other options were to lead to the best outcome. The resulting relative losses are evaluated and the decision is made for the option for which the relative losses are minimal in comparison.

Thus, the regret principle, like the maximin principle, is oriented toward loss avoidance rather than profit maximization. However, unlike the maximin principle, the regret principle is not based on worst-case assumptions. The payoffs when deciding according to the regret principle are therefore likely to be higher than when applying the maximin principle, but the decision will be subject to a higher residual risk that things may turn out differently after all.

If no information on rational decision criteria is available, you can also decide for your negotiating partners and for yourself based on the assumption of the subjectively perceived value of alternative scenarios.


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