The neural basis of regret and disappointment and its influence on pricing decisions: insights from self-agency and other-agency responsibility pricing experiments
By integrating neuroscientific methods into pricing research, this study reveals distinct neural responses to regret and disappointment and demonstrates that individual pricing behaviors are not solely driven by strategic avoidance of regret-related negative emotions, challenging established behavioral economic assumptions.
Original paper licensed under CC BY 4.0 (https://creativecommons.org/licenses/by/4.0/). This is an AI-generated explanation of a preprint that has not been peer-reviewed. It is not medical advice. Do not make health decisions based on this content. Read full disclaimer
Human beings are not the perfectly logical calculators that early economic theories once imagined. We are creatures of feeling, often making choices that seem irrational because we are haunted by "what if" scenarios. When we look back at a decision and wish we had chosen differently, we feel regret. When we wish the world had turned out differently, regardless of our own choices, we feel disappointment. For decades, economists have tried to understand how these powerful emotions shape our behavior, particularly in financial matters like setting prices. The prevailing theory suggests that people learn from these painful feelings and strategically change their future actions to avoid them, essentially trying to outsmart their own emotions to maximize profit. But does the brain actually work that way, or do our feelings sometimes pull us in the opposite direction?
A team of researchers from Beihang University and Zhengzhou University decided to look inside the mind to find the answer. Instead of simply asking people how they felt after a bad decision—a method that relies on memory and self-reporting—they measured the brain's electrical activity in real time. They designed a pricing experiment where participants acted as sellers, setting prices for a product while the computer acted as the buyer. In one version of the game, the participants chose the price themselves, creating a situation where a bad outcome would trigger regret. In another version, the computer chose the price, and the participants simply watched the result, creating a situation where a bad outcome would trigger disappointment. By recording the brain waves of twenty-one students during these trials, the researchers could see exactly how the brain reacted when a seller realized they had priced too low or too high.
The results revealed a clear and distinct pattern in the brain's response. When participants set a price themselves and realized they could have earned more money by choosing a different price, their brains showed a strong, immediate electrical signal known as feedback-related negativity. This signal, which peaks in the front part of the brain, is a marker of conflict and error detection. It appeared strongly when they felt regret over underpricing (selling too cheap) and overpricing (selling too expensive). However, when the computer set the price and the participants felt disappointment, the brain's reaction was much weaker. The signal for underpricing disappointment was only faintly present, and for overpricing disappointment, there was no significant signal at all. This suggests that the brain treats regret, which comes from our own actions, as a much more urgent and significant event than disappointment, which comes from external circumstances.
To understand how these brain signals influenced future behavior, the researchers looked at the specific electrical patterns of each individual. They found that the strength of the regret signal in a person's brain could predict how they would price items in the future. Here, the findings took a surprising turn that challenges the standard economic view. The theory that people act rationally to avoid negative emotions suggested that if someone felt a strong pang of regret for underpricing, they would be more likely to set a higher price next time to avoid that feeling again. The data showed the exact opposite. Participants who had the strongest brain signals for underpricing regret were actually more likely to set a low price in the future, repeating the very mistake that caused them pain. Similarly, those with strong signals for overpricing regret were more likely to set a high price again after a bad outcome, rather than adjusting to avoid the loss.
This counterintuitive behavior suggests that the brain does not simply use regret as a lesson to correct future mistakes. Instead, the intense negative emotion might be reinforcing the memory of the action, causing the person to unconsciously repeat it, or perhaps they are driven by a hope that this time the outcome will be different. The study provides a rare glimpse into the neural machinery of decision-making, showing that our brains react differently to regret and disappointment, and that our emotional responses do not always lead us to make smarter choices. While the researchers cannot yet say exactly why the brain behaves this way, their work proves that the simple idea of the rational actor avoiding pain is incomplete. In the complex landscape of human decision-making, the very feelings we try to avoid can sometimes be the very things that lead us back to the same path.
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