Open Economies Review

, Volume 26, Issue 1, pp 109–119 | Cite as

Exchange Rate Risk and the Impact of Regret on Trade

  • Udo Broll
  • Peter Welzel
  • Kit Pong Wong
Research Article


This paper examines the behavior of the regret-averse firm under exchange rate uncertainty. Regret-averse preferences are characterized by a modified utility function that includes disutility from having chosen ex-post suboptimal alternatives. We show that the conventional results that the firm optimally produces less, sells more domestically, and export less abroad under uncertainty than under certainty holds if the firm is not too regret-averse. Using a binary model wherein the random spot exchange rate can take on either a low value or a high value with positive probability, we show that the conventional results may not hold, particularly when the firm is sufficiently regret-averse and the low spot exchange rate is very likely to prevail.


Exchange rate risk Exporting Regret theory 

JEL Classifications

D81 F23 F31 


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Copyright information

© Springer Science+Business Media New York 2014

Authors and Affiliations

  1. 1.Department of Business and Economics, School of International Studies (ZIS)Technische Universität DresdenDresdenGermany
  2. 2.Faculty of Business Administration and EconomicsUniversity of AugsburgAugsburgGermany
  3. 3.School of Economics and FinanceUniversity of Hong KongPokfulam RoadHong Kong

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