TEMPERED REGRETS UNDER TOTAL IGNORANCE

Several decision rules, including the minimax regret rule, have been p osited to suggest optimizing strategies for an individual when neither objective nor subjective probabilities can be associated to the vario us states of the world. These all share the shortcoming of focusing on ly on extreme outcomes. This paper suggests an alternative approach of 'tempered regrets' which may more closely replicate the decision proc ess of individuals in those situations in which avoiding the worst out come tempers the loss from not achieving the best outcome. The assumpt ion of total ignorance of the probabilities associated with the variou s states is maintained. Applications and illustrations from standard n eoclassical theory are discussed.