Academic journal article Social Behavior and Personality: an international journal

How Multiple Reference Points Influence Managers' Post-Decisional Regret

Academic journal article Social Behavior and Personality: an international journal

How Multiple Reference Points Influence Managers' Post-Decisional Regret

Article excerpt

Although regret is the most relevant emotion in the domain of decision making, research addressing the regrets of managers and how these are influenced by multiple reference points is lacking. In the context of a choice set with more than 2 alternatives, this study demonstrates that sales managers evaluated their postdecisional regrets based on three reference points: the best-performing unchosen outcome, the worst-performing unchosen outcome, and their expected outcome. The first 2 are social comparison-based standards and the last is a temporal comparison-based standard. Managers equally favored social comparison and temporal standard information when assessing their postdecisional regrets. In addition, it was found that the feeling of regret was largely influenced by a loss or gain relative to each reference point rather than by the degree of loss or gain.

Keywords: expectation, regret, reference point, social comparison, temporal comparison.

Jack is a sales manager of an electronic equipment manufacturer. He is currently examining several potential distributors that will assist his company in distributing its high-tech industrial machinery. After narrowing the search, Jack considers three companies (Alpha, Beta and Gamma), and decides to cooperate with company Alpha, mainly because of his expectations that it will provide a higher sales growth rate than the others (Alpha is expected to increase by 6% within the next year). A year later, Alpha's sales growth rate is 3%, while the sales growth rate of Beta is 12% and Gamma decreased 4% (both of them were hired by two competitors). How does Jack now feel about his decision to cooperate with Alpha? Does he feel regret because he compares his actual outcome (a 3% gain) to the outcome that would have been obtained if he had cooperated with Beta (a 12% gain). Or does he feel rejoicing (the opposite of regret), stemming from a comparison with the outcome that would have been had he cooperated with Gamma (a 4% loss)? Jack's postdecisional feelings may in addition be influenced by another possible reference point, namely, the a priori expected sales growth rate (a 6% gain). How do these three possible reference points influence regret? Which of these reference points has the largest impact on regret? Is regret driven mainly by a loss or gain relative to each reference point or by the magnitude of that loss or gain?

Reference points are important because outcomes are compared to them, and are coded and evaluated in terms of this comparison (Kahneman, 1992). The concept of reference points was introduced in prospect theory (Kahneman & Tversky, 1979). According to prospect theory, decision makers adopt a reference point, a point that may represent an available option. Decision makers then evaluate their outcomes relative to this point. Outcomes below the reference point are viewed as losses, and outcomes above the reference point are perceived as gains. The importance of such reference points has been highlighted by regret theory (e.g., Bell, 1982; Loomes & Sugden, 1982), which has shown that the foregone alternative or target becomes the reference point against which regret is computed. When an obtained outcome compares unfavorable with an outcome that was possible had we chosen differently, regret is evoked. Conversely, if a different choice would have led to a worse outcome, people are pleased (Van Dijk & Zeelenberg, 2005).

In real life, however, multiple alternatives exist. Thus, the decision makers may simultaneously face reference points that are above, at, or below the focal option. If two or more alternatives are unchosen, which one will become the comparison standard for measuring regret? At present, we know little about the simultaneous impact of multiple reference points on regret. Although some scholars have recognized that decision makers may use multiple reference points in decision making and in judgments of postdecisional regret (Bell, 1982; Inman, Dyer, & Jia, 1997; Oliver, 1996), Frederick and Loewenstein (1999) recently pointed out that the information of multiple reference points and their relative weighting has not been investigated empirically. …

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