Explain the concept of regret theory and its connection to loss aversion.

Explain the concept of regret theory and its connection to loss aversion.

Regret theory is a behavioral economic concept that suggests individuals anticipate and experience regret when making decisions. It is closely connected to loss aversion, which is the tendency for individuals to strongly prefer avoiding losses over acquiring gains. In the context of regret theory, loss aversion plays a significant role as individuals are more likely to experience regret when they perceive a decision as resulting in a loss rather than a gain. Loss aversion intensifies the negative emotions associated with regret, leading individuals to make decisions that minimize potential losses and maximize potential gains.