Journal of Family Business Strategy 3 (2012) 118–126

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Journal of Family Business Strategy

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The role of regret in the owner-manager decision-making in the family business:

A conceptual approach
Gérard Hirigoyen a, Rania Labaki a,b,*
a
University of Montesquieu Bordeaux IV, Research Institute of Organizations Management (IRGO), 35 Avenue Abadie, 33072 Bordeaux Cedex, France
b
INSEEC Business Schools, INSEEC Research Centre, France

A R T I C L E I N F O A B S T R A C T

Article history: This article responds to recent calls of scholars for more research on emotions in the family business by
Received 19 July 2011 providing an initial analytical study of the owner-manager regret in decision-making. First, we suggest
Received in revised form 20 March 2012 an enlarged theoretical framework for analyzing decision-making in the family business by building on
Accepted 23 March 2012
the behavioural model of emotions in decision-making of Loewenstein and Lerner (2003) and Regret
Theory. Second, we offer a first characterization of the emotion of regret in the family business. Given the
Keywords: overlap between the family and the business systems, we introduce a dual dimension of regret that is
Decision-making
family-based and business-based. We also extend the analysis towards a dynamic view of regret by
Emotions
accounting for the owner-manager’s experienced regret at the time of decision in addition to the
Family business
Regret traditionally analyzed expected regret. Departing from the common assumption that the owner-
Value manager is altruistic towards the family and acts as a steward for the business, we consider that the
owner-manager’s expected outcomes refer to emotional and financial value maximization. Based on
these characterizations, we develop a conceptual model with a series of propositions on the role of the
owner-manager regret in decision-making. Finally, we present the theoretical, conceptual and practical
contributions of the study as well as its limitations from which stem research avenues on regret and
decision-making in the family business.
ß 2012 Elsevier Ltd. All rights reserved.

1. Introduction disciplines such as economics, finance, organizational behaviour,

In the opening words of his Nobel Memorial Lecture, Simon
(1978) referred to Alfred Marshall’s statement proclaiming
economics as a psychological science: ‘‘It is on one side a study
of wealth; and on the other, and more important side, a part of the
study of man’’ (Marshall, 1920, p. 1). Traditionally, scholars in
economics have placed little or no emphasis on the psychological
aspects in their decision-making models aimed at maximizing the
utility function of the firm. A paradigm shift has progressively
allowed to open the black box by moving the focus from The Nature
of the Firm (Coase, 1937) to the Nature of Man (Jensen & Meckling,
1994). Managers have henceforth been acknowledged as having a
bounded rationality and irrationality, the latter being considered a
response to their emotions that leads to deviations from rational
actions (Simon, 1945, 1987). This has marked the starting point for
a growing research interest on emotions in decision-making across
* Corresponding author at: University of Montesquieu Bordeaux IV, Research
Institute of Organizations Management (IRGO), 35 Avenue Abadie, 33072 Bordeaux
Cedex, France. Tel.: +33 663603725.
E-mail addresses: gerard.hirigoyen@u-bordeaux4.fr (G. Hirigoyen),
rania.labaki@u-bordeaux4.fr (R. Labaki).
marketing, and entrepreneurship. Research on the role of emotions
in family business decision-making is to date still, however, at its
early stages of development.
Recently, family business scholars called for more studies on
emotions in the family business (Astrachan & Jaskiewicz, 2008;
Labaki et al., 2012; Pieper, 2010; Van den Heuvel et al., 2007). The
International Family Enterprise Research Academy (IFERA) sug-
gested ‘‘Emotional dynamics in the family business’’ as its main
annual conference theme for 2012. These considerations reflect the
increasing awareness of the importance of emotions in explaining
family business behaviour. It is important to note, nevertheless,
that existing studies on emotions in the family business comprise
major limitations. They often rely on new and confusing emotional
constructs, restrict the analysis to emotions in the family system,
and fail to take into account the organizational behaviour literature
findings, which heavily explored emotions in the business system
(Labaki et al., 2012). The emotional process that entails the owner-
manager making decisions in the family business is not yet
sufficiently analyzed.
While there is still considerable debate regarding what
constitutes emotions (Labaki et al., 2012), there is a widespread
consensus on the relevance of the emotion of regret for understand-
ing decision-making. Regret is the prototypical decision-related

1877-8585/$ – see front matter ß 2012 Elsevier Ltd. All rights reserved.
http://dx.doi.org/10.1016/j.jfbs.2012.03.004
 G. Hirigoyen, R. Labaki / Journal of Family Business Strategy 3 (2012) 118–126
emotion as it is the only negative emotion that cannot be
experienced without choice (Zeelenberg & Pieters, 2007). Although
it has received the most attention from decision theorists (Connolly
& Zeelenberg, 2002)1, only few family business scholars dealt with
regret in their studies. This has been done by either empirically
linking different dimensions of regret to different types of managers
in their late life stage (Sonnenfeld & Spence, 1989), or by
conceptually recognizing that managers’ decisions under uncer-
tainty are influenced by expectations of regret (Shepherd &
Zacharakis, 2000). The owner-manager’s regret remains surprisingly
unexplored. Neither the conceptualization of the emotion of regret
nor the exploration of its antecedents and expectations has been
developed to account for the unique nature of family businesses as
compared to non-family businesses.
Family businesses are characterized by the bivalent attributes
of the family and business systems (Tagiuri & Davis, 1996). The
family and the business are overlapping systems moving
simultaneously towards mutual existence, when changes in one
system manifests in changes in the other system (Danes, Lee,
Stafford, & Heck, 2008). Regret experienced in one system (e.g., the
family) may affect the decision-making in the other system (e.g.,
the business), and vice versa. Managers in non-family businesses
may not experience these dynamics, or at least not as strongly as in
family businesses. Based on the common assumption that the
owner-manager often acts as a steward for the business (Miller, Le
Breton-Miller, & Scholnick, 2008) and has an altruistic behaviour
towards the family (Eddleston & Kellermanns, 2007), s/he will be
impelled to maximize the family business value in a way that
meets the business and the family needs. The family business
utility function encompasses the maximization of the emotional
value in addition to the traditional financial value (Zellweger &
Astrachan, 2008). The owner-manager regret that influences
decision-making is therefore dual, in that it is both family and
business-based. Family business owners-managers are long-term
oriented (Miller & Le Breton-Miller, 2005) and remain active in the
business for a longer period of time than non-family business
managers (Gomez-Mejia, Nunez-Nickel, & Gutierrez, 2001). They
may benefit from past family and business-based regret experi-
ences to improve their family business decisions and meet both the
family and the business expectations. In this line of thought, it is
crucial to include in the analysis the owner-manager’s experienced
regret in addition to the traditional expected regret that is often
included in non-family managers’ models of decision-making. This
contributes to providing a dynamic view of owner-manager regret.
By accounting for these distinct characteristics, an adaptation of
the traditional definitions of regret (e.g., Elster, 1998; Lin, Huang, &
Zeelenberg, 2006; Zeelenberg, 1999) becomes necessary in the
family business context. Hence, we define the owner-manager’s
regret as ‘‘the emotion that s/he realizes or imagines if the present
situation, perceived by the family on one hand and by the business on
the other hand, would have been better if s/he would have acted
differently’’.
Given the scarcity of research and the gaps in knowledge on
regret in the family business, there is a need to take into account the
identified characteristics of the owner-manager regret for a more
exhaustive understanding of its role in decision-making. Our article
suggests an initial analytical study exploring the research question:
‘‘How does the emotion of regret affect the owner-manager decision-
making in the family business?’’. First, we aim to offer a more relevant
theoretical framework for the analysis of the owner-manager regret
1
For example, scholars in economics analyzed how regret misleads investors
when they have to choose profitable and less risky assets while applying it to
decision making, whereas scholars in marketing analyzed the influence of regret on
the consumer’s purchase decision and the post-learning process that will feed
future decision-making given the experienced regret.
119
by bridging the state-of-the-art research on regret and decision-
making in behavioural economics, management sciences and family
business. We depart from a critical analysis of the traditional
Expected Utility (EU) Theory as it pertains to family businesses. By
relaxing its assumptions, we extend the analysis toward behavioural
economics developments on emotions in decision-making. In
particular, we build on the model of emotions developed by
Loewenstein and Lerner (2003), that we suggest enriching with
insights from Regret Theory (Bell, 1982, 1983; Loomes & Sugden,
1982) applied to the owner-manager decision-making in the family
businesses (Section 2).
Second, we propose a characterization of regret as a multidi-
mensional construct in the family business. In order to account for
the dynamic role of regret in decision-making, we consider both
the classically studied expected regret that appears before the
decision is made, as well as the scarcely studied experienced regret
that occurs at the time of decision, feeding future decision-making.
To offer a more fine-grained perspective on the role of expected
and experienced regret, we include the business-based regret along
with the family-based regret that is particular to family businesses
(Section 3). We then suggest focusing the model of emotions of
Loewenstein and Lerner (2003) on the owner-manager regret. By
introducing our typology of regret and bridging it with insights
from the family business literature, we present a model on the role
of the owner-manager regret in the family business with a series of
propositions (Section 4). Finally, we conclude with the contribu-
tions and limitations of our work, and close with new research
avenues for investigating the emotion of regret and decision-
making in the family business (Section 5).
2. An enlarged theoretical framework for analyzing the
emotion of regret in family business decision-making
In the field of economics, the predominant model of choice
under uncertainty was traditionally backed by the Expected Utility
(EU) Theory (Bell & Farquhar, 1986; Rick & Loewenstein, 2008).
This theory is not exempt from important limitations that restrict
the analysis of decision-making in the family business. As
introduced above, we suggest overcoming its pitfalls by extending
the analysis to recent developments on decision-making that
account for the role of emotions. We suggest focusing the model of
emotions developed by Loewenstein and Lerner (2003) on the
emotion of regret based on a complementary theory that is Regret
Theory (Bell, 1982, 1983; Loomes & Sugden, 1982). This provides
us with a dynamic and a more relevant theoretical framework for
understanding the different ways in which the emotion of regret
enters into the owner-manager decision-making.
2.1. Relaxing assumptions of the traditional expected utility theory as
a guide to behaviour
The concept of Expected Utility (EU) originates back to the 18th
century. Based on several illustrations such as the St Petersburg
Paradox, Bernoulli (1738) has argued that individuals do not
maximize the expected monetary value of an item but the utility it
yields, which is dependent on the circumstances. Two centuries
later, Von Neumann and Morgenstern (1944) have built on this
concept to develop one of the most influential theories of
individual choice behaviour, the EU Theory, in their seminal book
Theory of Games and Economic Behaviour. The theory aimed at
analyzing how individuals make decisions while accounting for
risk aversion. It assumes that individuals compare the expected
utility of existing alternatives and choose the alternative with the
highest expected utility. Despite its significant contributions to the
analysis of decision-making, the axioms foundations of the EU
theory have been criticized by scholars who reported paradoxes
120 G. Hirigoyen, R. Labaki / Journal of Family Business Strategy 3 (2012) 118–126
and violations of its predictions while suggesting a series of
refinements (e.g., Allais, 1953; Fishburn, 1970; Jensen, 1967).
Among the main limitations2, two pertain especially to the owner-
manager’s decision-making. By briefly highlighting them, we
justify the need for alternative theories to complement the analysis
in the family business.
The first limitation refers to the assumption of the EU as the sole
factor affecting decisions. Until recently, most economists
excluded the idea that the utility an individual associates with
an outcome might arise from or depend on expected emotions
(Rick & Loewenstein, 2008). Building on the EU theory, the
manager acts rationally by making a choice based on the value of
the firm’s expected utility. However, recent research has revealed
how counterfactual emotions, such as regret, may influence
decision-making. In the family business, emotions pervade not
only the business system but also the family system, and have the
potential to move from one system to another. Factors pertaining
to emotions in the family and the business should be included to
extend the EU model since they do affect decisions in the family
business in a particular way that may not be experienced in
businesses with no family connections (Brundin & Melin, 2006;
Brundin & Nordqvist, 2008; Van den Heuvel et al., 2007).
The second limitation relates to the consideration of satisfac-
tion as a criterion for choice given that choice is based on stable
individual preferences. As Elster (1983) puts it, however,
individuals are able to adjust their aspirations to their possibilities.
The author refers to the ‘‘Sour grapes fable’’ that tells us about a fox
changing the course of his decision-making because of his
incapacity to reach the grapes that attracted him. In a utilitarian
point of view, the fox decides not to consume the grapes because
he perceives them as sour, therefore leading to no welfare loss. In
Elster’s point of view, the phenomenon of sour grapes is an
adaptive preference formation or change. Sour grapes are simply a
way of reducing the cognitive dissonance of the fox in the sense of
Festinger (1957). Since preferences can be adaptive, there is need
for a more realistic model of managerial decision-making that
helps to overcome these limitations. In particular, the owner-
manager’s adaptive preferences are generally not self-oriented. S/
he might adapt his/her preferences depending on family and
business’ perceptions over time. Subsequent developments made
in the literature revealed important progress in models of decision-
making that would help refine the analysis in a dynamic
perspective.
2.2. Emotions in behavioural models of decision-making
Despite the seminal work of the economist Smith (1759) on The
Theory of Moral Sentiment more than two centuries ago, emotions
have only recently been taken into account in explaining human
behaviour. While scholars in economics started recognizing the
role of emotions in decision-making from a managerial perspective
(e.g., Simon, 1955), the family behavioural perspective did not
appear until 20 years later (e.g., Becker, 1976, 1993). In the family
business field, scholars are now increasingly analyzing how
emotions influence decision-making, for example by including
emotions as part of the manager’s business valuation (Astrachan &
Jaskiewicz, 2008; Zellweger & Astrachan, 2008) or as part of the
entrepreneurial process (Baron, 2008).
Intensive developments in behavioural economics translated
into a series of models on decision-making which introduced the
emotions component under the assumption of risky situations.
2
An exhaustive overview of the limitations of EU theory is beyond the aim and
scope of this article. The reader is invited to refer to Bell and Farquhar (1986),
Loewenstein and Lerner (2003), Rick and Loewenstein (2008) and Laciana and
Weber (2008).
Among major findings, emotions impact cognitive functions of
individuals (Johnson & Tversky, 1983; Shiv, Loewenstein, Bechara,
Damasio, & Damasio, 2005), as well as their behaviour and the
behaviour of close contacts due to emotional contagion (Hareli &
Rafaeli, 2008). Both positive and negative emotions have been
considered as influencing risky decisions in different ways and
leading to behavioural choices that are different in terms of risk
aversion or preferences (e.g., Isen, 2001).
In particular, there are two main types of influence of emotions
upon decisions: (1) the experienced emotions affect several levels
of cognitive processes, and (2) the expected emotions prepare
future decisions (Mellers, Schwartz, & Ritov, 1999). Among
relevant conceptual developments, Loewenstein and Lerner
(2003) initiated a general model of positive and negative emotions.
Their model differentiates itself from other economic models of
decision-making, in that it explicitly introduces experienced
emotions in addition to the commonly used expected emotions
in the analysis. The model allows us to expand our understanding
of the emotional part of the decision-making process through a
series of propositions on the mutual influence of the expected and
experienced emotions, along with their influence on the expected
outcomes of the decision to be made.
Since the model of Loewenstein and Lerner (2003) is not
focused on one type of emotion, we suggest building on the Theory
of Regret to translate it to the emotion of regret, which is the only
negative emotion that cannot be experienced without choice. This
allows us to account for the expected regret and experienced regret
of the owner-manager.
2.3. Regret Theory as a complementary perspective on family business
decision-making
Whereas during the past decades a proliferation of theories on
emotions dominated the organizational behaviour, psychology,
and sociology fields, several economists independently generated
their own theories to overcome the limitations of the EU Theory by
accounting for behaviour not predicted by that theory based on the
emotion of regret. While most scholars attribute Regret Theory to
Bell (1982, 1983) and Loomes and Sugden (1982), premises of this
theory had already been developed in the 1950s with the principle
of Minimax Regret (Luce & Raiffa, 1957; Savage, 1951). This
principle refers to decisions made after computing the maximum
of possible regrets for each option and choosing the option with the
lowest regret. Building on insights from Savage (1951), Paroush
and Venezia (1979) introduced regret in addition to profits in the
analysis of the utility function of decision-makers.
Regret Theory is an alternative theory of rational choice under
uncertainty, in that it intends to explain many of the observed
axiom violations of EU theory by introducing a correction to the
utility calculation (Bell, 1982; Loomes & Sugden, 1982). This
correction refers to a change in the utility assessment of an
outcome, which is viewed as the result of comparing the achieved
outcome with the outcome the decision-maker could have
obtained under the realized state of the world, had s/he chosen
a different option.
Preferences are defined by actions that assign outcomes to a
particular state of the world (Loomes, Starmer, & Sugden, 1992).
Initially, Regret Theory was considered as one of pairwise choices
under uncertainty, in which there is a finite number of states of the
world, any of which might occur with some probability (Bell, 1982;
Loomes & Sugden, 1982). It has been extended by Loomes and
Sugden (1987) and Sugden (1993) towards choices where there are
more than two alternative actions; each alternative being
associated with various probabilistic outcomes.
By viewing individuals as being impelled to avoid the
experience of regret and make decisions that minimize the
 G. Hirigoyen, R. Labaki / Journal of Family Business Strategy 3 (2012) 118–126
expected regret to achieve the desired outcomes, Regret Theory
offers a relevant framework to understand the regret-related
preferences of the owner-manager over actions that have the
potential to impact the family and the business. Family businesses
are indeed often distinguished by the owner-manager’s steward-
ship (Miller et al., 2008) and altruism that is recognized to be of
significant importance in the family (Becker, 1993; Eddleston &
Kellermanns, 2007).
In order to reduce the Loewenstein and Lerner’s (2003) model
complexity when applied to the emotion of regret, we build on the
assumption that the owner-manager is driven by stewardship
towards the business and by altruism towards the family. Her/his
utility function reflects the family and business utility functions.
Since Regret Theory is mainly focused on expected regret whereas
Loewenstein and Lerner’s (2003) model focus on expected and
experienced emotions, a more fine-grained characterization of the
owner-manager regret and value in the family business is
necessary for a better delineation of our conceptual model.
3. Characterization of regret and value in family business
decision-making
According to Regret Theory, the optimal expected utility
function has two attributes: value and regret. These components
determine the choice of the alternative. In the family business,
value does not have the same connotation than in non-family
businesses. Accordingly, regret is differently viewed given the
additional family system. Introducing regret and expected utility
to analyse the decision-making process of the owner-manager
requires a delineation of their definitions and characteristics in the
specific family business setting.
3.1. Regret in family business
Whereas regret is generally not considered as a basic emotion
(Zeelenberg & Pieters, 2007), it is acknowledged as a distinct
emotion essential to understanding decision-making. In fact, all
negative emotions, except regret, can be experienced without
choice (Zeelenberg & Pieters, 2007). As Zeelenberg and Pieters
(2007) put it, regret is uniquely tied to the making of decisions. It is
a ‘‘counterfactual’’ (Elster, 1998; Kahneman & Miller, 1986) and
‘‘cognitive’’ emotion which is developed relatively late in our
emotional development while stemming from and producing
higher order cognitive processes (Zeelenberg & Pieters, 2007).
The most common definition of regret refers to ‘‘the negative,
cognitively-based emotion that we experience when realizing or
imagining that our present situation would have been better, had
we acted differently’’ (Zeelenberg, 1999, p. 325). Stated differently,
it requires the ability to compare processes (Van Dijk & Zeelenberg,
2005; Zeelenberg & Van Dijk, 2005) by reflecting on one’s choices
and the outcomes generated by these choices, as well as on what
other outcomes might have been obtained by making a different
choice (Zeelenberg & Pieters, 2007).
Whereas research on emotions is relatively old, research on
regret originated only a quarter of a century ago in economics (Bell,
1982; Loomes & Sugden, 1982) and psychology (Gilovich &
Medvec, 1995; Kahneman & Tversky, 1982) while being focused
mainly on decision-making. Rapidly though, it expanded towards
other fields such as marketing, law, organizational behaviour,
medicine, cross-cultural psychology, economic psychology, health
psychology, and neuroscience (Zeelenberg & Pieters, 2007).
Although regret is the emotion that has received the most
attention from decision theorists (Connolly & Zeelenberg, 2002)
especially in the management sciences, today it is mostly studied
in the marketing literature from the perspective of the consumer
decision-making process while being developed to a lesser extent
121
in the finance literature from the perspective of the investors’
choices (Michenaud & Solnik, 2008). Little is known in the family
and the family business fields, especially regarding the owner-
manager’s decision-making. This is surprising given the sharp
development of academic interest in regret since the 1990s, as
shown by a review of academic databases from 1945 to 2005
(Zeelenberg & Pieters, 2007).
We therefore bridge recent developments on the role of
emotions in decision-making in general (Loewenstein & Lerner,
2003; Rick & Loewenstein, 2008) and the role of regret in particular
(Zeelenberg & Pieters, 2007). The owner-manager regret appears
as a multidimensional construct specific to the family business. In
addition to the classical distinction between expected regret and
experienced regret, we offer an original typology of family and
business-based regret that is peculiar to the family business. This
typology builds the basis of our conceptual model in the following
sections.
3.1.1. Expected regret versus experienced regret
Regret is the result of a comparison between ‘‘what is’’ and
‘‘what might have been’’ (Lin et al., 2006) that is generated by
thoughts about what might have happened but didn’t (Elster,
1998). Traditionally, scholars have made two relevant distinctions
given the experience of regret and the related perception of
decisions. First, managers may regret the decision outcomes.
Second, they may regret the decision process (to act and not to act;
to act according to several alternatives) (Zeelenberg & Pieters,
2007). Thus, a decision process that is bad in comparison to an
alternative decision process can be regretted even if the decision
outcomes are good3.
Given the decision time frame, researchers tend to agree that
managers include a dual regret in their decision-making process:
anticipated regret also called expected regret, and immediate
regret also called experienced regret. This dual regret acts at
different points in time during the decision-making process. It is
taken into account before the decision is made, therefore playing
an important role in determining what the manager will choose, as
well as at the moment at which the decision is made, which will in
turn determine future decisions in a feedback loop stance.
Expected regret takes explicit account of the consequences of a
decision. It refers to expectations about the regret that will be
experienced in the future as a result of the outcomes materialized
by the decision, and that will shape the present decision
(Zeelenberg & Pieters, 2007). Immediate regret is an experienced
regret at the time of decision-making (Rick & Loewenstein, 2008;
Zeelenberg & Pieters, 2007) when decisions are based on future
outcomes (Zeelenberg, 1999). It happens after having chosen a
course of action, when the manager feels that s/he would have
been better off choosing a different course (Bell, 1982; Loewen-
stein & Lerner, 2003; Loomes & Sugden, 1982; Zeelenberg, 1999).
Both anticipated and immediate types of regret have been
described as ‘‘retrospective’’ and ‘‘prospective’’. Anticipated regret
has a prospective element that signals to the manager when
decisions would be regrettable, and a retrospective element that
looks backward from the future to guide her/his present decisions.
Immediate regret has a retrospective element that informs the
manager about the level of goal achievement and a prospective
element that shapes her/his future behaviour (Zeelenberg &
Pieters, 2007).
Since executive tenure of family managers is higher as
compared to non-family managers (Gomez-Mejia et al., 2001),
both the expected and experienced dimensions of regret may play
a greater role over the long-run than in non-family businesses, as
3
Notwithstanding the relevance of the process regret, the upcoming develop-
ments will focus on the outcome regret.
122 G. Hirigoyen, R. Labaki / Journal of Family Business Strategy 3 (2012) 118–126
they may continuously contribute to shaping the owner-manager
decisions towards better achievements of the family business
expectations.
3.1.2. Family-based regret versus business-based regret
Regret entails attempts to maximize utility over time, by
comparing decision processes and outcomes to what might have
been, and informing the self and others about it (Zeelenberg &
Pieters, 2007). In a systems view, the owner-manager’s utility
function is distinct from a non-family business manager’s since it
articulates two intermingling systems and their expectations, the
family system and the business system (Astrachan & Jaskiewicz,
2008; Tagiuri & Davis, 1996). Added to this, the ‘‘others’’ to be
informed refer to a specific category of family members that can be
both active and passive in the business. Although predominantly
family business research tends to consider that emotions belong
only to the family system whereas the business system is based on
rationality (Carlock & Ward, 2001; Kepner, 1983), the broader
organizational behaviour research is rich with studies on emotions
in business settings (Barsade et al., 2003). Emotions in the family
business exist both in the family and the business systems (Labaki
et al., 2012). Regret has therefore two dimensions: it is both family-
based, taking into account the family effect upon decisions; and
business-based taking into account the business effect upon
decisions. Given the lack of a distinctive definition of regret in
the family business, we suggest that while making decisions the
owner-manager expects and experiences regret by reference to
both the family and the business systems. By extending our
previous developments of the literature on regret to the family
business literature, we offer a more refined definition: ‘‘the family
business owner-manager regret is the emotion the manager realizes or
imagines if the present situation, perceived by the family on one hand
and by the business on the other hand, would have been better if s/he
would have acted differently’’.
3.2. Family business value
Understanding the owner-manager’s perception of regret
requires identifying her/his multiple reference points. Regret has
been reported as being influenced by losses or gains relative to
each reference point rather than by the size of the loss or gain (Lin
et al., 2006). In most regret studies, subjects are simply asked to
indicate their regret over a decision concerning two alternatives,
with the not chosen alternative as the only reference point.
Although some scholars have recognized that decision makers may
use multiple reference points in decision-making and in judgments
of post-decisional regret (Bell, 1982), the information of multiple
reference points and their relative weighting has not been
sufficiently investigated empirically (Lin et al., 2006).
Multiple reference points can be included to assess the owner-
manager’s regret and build a family business decision-making
model: action versus inaction outcomes (e.g., investment versus no
investment decision) and different intensities of outcomes and
expectations (e.g., the best-performing investment project; the
worst-performing investment project).
Since we depart from the assumption that the owner-manager is
altruistic toward the family and a steward for the business, the
formulation of the utility function leads us to consider the expected
utility of the owner-manager in the family business (in terms of
preferences) as the maximization of the family business value.
In a family business, value is perceived as bi-dimensional since it
is induced by both economic benefits (wealth creation) and non-
economic benefits (socio-emotional wealth) (Chrisman, Chua, & Litz,
2003; Gomez-Mejia, Haynes, Nunez-Nickel, Jacobson, & Moyano-
Fuentes, 2007). In fact, a family business can be thought of as a
vehicle enabling a family to achieve its financial and non-financial
goals and thus to maximize the owners’ utility (Astrachan &
Jaskiewicz, 2008). Apart from financial goals, the utility of the
owner-manager can include non-financial goals (Zellweger &
Dehlen, 2011), which relate to the business (e.g., business
reputation, products and services quality) (Donnelley, 1964), to
the family (e.g., family members’ security and emotional well-being)
(Pollak, 1985), and to the individual (e.g., individual pride) (Davis,
1983). Therefore, family business value in the eye of the owner-
manager refers to both emotional and financial value (Astrachan &
Jaskiewicz, 2008; Zellweger & Dehlen, 2011; Zellweger & Astrachan,
2008). In turn, it is closely associated with the bi-dimensional regret
that is family and business-based.
4. Towards a conceptual model of the emotion of regret in the
family business
A few family business scholars have considered regret in their
conceptual models and empirical studies. Sonnenfeld (1988) and
Sonnenfeld and Spence (1989) were the first to suggest different
dimensions of the family business manager’s regret, while focusing
on the later life stage. Since managers are more likely to consider
regret over mistakes and lost opportunity in late life (Erikson,
1963), the authors suggested a typology of managers at the later
life cycle stage, then empirically analyzed different dimensions of
regret based on their typology: regret over an uncompleted
mission, regret over the firm’s performance after they left, regret
over the performance of an individual successor, regret over the
timing of the retirement decision, and the feeling that their skills
were underutilized. The findings of their survey show that the
‘‘Generals’’ type of manager was far more likely to express regret
over loss of power, regret over loss of prestige, and over loss of
being centre of attention. Although interesting, this unique study is
still restricted to the family business owner-manager at a specific
life cycle stage whereas regret has not been introduced in
modelling decision-making at this point.
Given these gaps, it becomes crucial to adapt models on emotions
in decision-making from other disciplines to the family business.
Most of the existing models, however, focus on one timeframe of the
decision-making which does not account for a dynamic perspective
on regret. As stated earlier, among relevant although general models
of emotions in decision-making, we identified the model of
Loewenstein and Lerner (2003) revised by Rick and Loewenstein
(2008) as offering an interesting and dynamic frame of analysis. We
suggest adopting their model of expected and experienced emotions
and focusing it on the emotion of regret to offer a dynamic
perspective on family and business-based regret, that is expected
and experienced, in the owner-manager decision-making.
5. The dynamic role of experienced and expected regret in the
owner-manager decision-making
We suggest two different ways in which emotions enter into
decision-making in the family business: through the influence of
expected regret and through the influence of experienced regret.
For our propositions to be relevant, we consider that they apply to
important outcomes since the more important an outcome is, the
more likely it is that the decision-maker engages in the
anticipation of regret, because more important decisions will
result in more intense regret when things go awry (Zeelenberg &
Pieters, 2007). We follow the same line of analysis of Loewenstein
& Lerner (2003) to develop our series of propositions.
5.1. On the influence of expected regret
By applying the literature reflections on the outcomes of
expected emotions to the family business, it is possible to suggest
 G. Hirigoyen, R. Labaki / Journal of Family Business Strategy 3 (2012) 118–126
Fig. 1. A conceptual model of the owner-manager regret in decision-making.
Legend: EV = Emotional Value; FV = Financial Value, FR = Family-Based Regret;
BR = Business-Based Regret.
that the expected regret of the owner-manager predicts the
emotional consequences associated with alternative courses of
action. This consequently persuades her/him to select actions that
lead to outcomes that minimize negative emotions such as regret.
In considering an important decision (such as the choice of
the family business successor or the choice of an investment/
divestment project), the owner-manager attempts to predict the
probabilities of different outcomes, such as better business and
worse business performance (Sonnenfeld, 1988) or higher and
lower financial capital (Sharma, 2004) from the business side
(line b stemming from the decision to its expected consequences).
On the other hand, the owner-manager attempts to predict
issues from the family side such as higher or lower family
satisfaction in terms of family well-being (Olson et al., 2003),
emotional capital or family harmony (Sharma, 2004) from the
family side, as well as whether or not s/he would feel regret (and
which intensity of regret if any) toward the family and the
business under each alternative (line c running from expected
consequences to expected regret). As an example, the owner-
manager might wonder whether s/he will feel regret about
choosing a specific alternative because this choice will lead to a
decline in business performance or whether s/he will feel regret
about not having chosen a different alternative because of
possible family conflicts. This consideration might depend on
what extent the owner-manager is blinded by altruism (Schulze,
Lubatkin, & Dino, 2003), which may lead to a biased assessment
of the decision alternative. The desire to avoid experiencing
family or business regret might then dissuade the manager from
choosing a specific alternative (line a).
Given this, the following propositions are suggested:
Proposition a: In the family business, the extent of expected
regret will influence the owner-manager’s decision.
Proposition a1: In the family business, the extent of expected
family-based regret will influence the owner-manager’s decision.
Proposition a2: In the family business, the extent of expected
business-based regret will influence the owner-manager’s
decision.
Proposition b: In the family business, the owner-manager
makes the decision that is likely to achieve the expected family
business value maximization.
Proposition b1: In the family business, the owner-manager
makes the decision that is likely to maximize the emotional value.
Proposition b2: In the family business, the owner-manager
makes the decision that is likely to maximize the financial value.
Proposition c: In the family business, the expected value
maximization will influence the extent of expected regret.
Proposition c1: In the family business, the expected emotional
value will influence the extent of the expected family-based regret.
Proposition c2: In the family business, the expected financial
value will influence the extent of the expected business-based
regret.
123
Proposition c3: In the family business, the expected financial
value will influence the extent of the expected family-based
regret.
Proposition c4: In the family business, the expected emotional
value will influence the extent of expected business-based regret.
5.2. On the influence of experienced regret
In the family business, the owner-manager’s immediate regret
(experienced at the time of decision) influences decision-making in
two ways:
(1) When sufficiently strong (Rick & Loewenstein, 2008),
immediate regret can exert a direct impact on a decision (line d)
(Loewenstein & Lerner, 2003) precluding cognitive decision-
making (Loewenstein, 1996). This can be illustrated by the
example of the conflicted manager who experiences immediate
regret at the prospect of and at the moment of choosing an
alternative. Let us assume that there are discrepancies between
two possible alternatives with the first being less efficient in terms
of business performance and more efficient in terms of family
performance. If the first alternative is chosen, the immediate regret
will be business-based. Depending on the extent of immediate
regret, it might deter the owner-manager from choosing or
supporting the same alternative in the future. If the owner-
manager’s choice is the more efficient alternative business wise
but less efficient family wise, the highest level of regret would be
family-based and might encourage the owner-manager to choose
the first alternative instead.
Given this, we suggest the following propositions:
Proposition d: In the family business, the extent of immediate
regret will exert a direct impact on the owner-manager’s decision.
Proposition d1: In the family business, the extent of immediate
family-based regret will exert a direct impact on the owner-
manager’s decision.
Proposition d2: In the family business, the extent of immediate
business-based regret will exert a direct impact on the owner-
manager’s decision.
(2) Immediate regret can exert an indirect impact on a decision
by either altering the decision maker’s expectations of the
probability (line e); either desirability of future consequences or
the way that these consequences are processed (line f).
In terms of the indirect influence of the owner-manager’s
immediate family-based regret, linked to the original choice of a
specific alternative, this would lead to a biased calculation of the
probability of emotional value maximization. S/he might feel that
the consequence of that decision will lead to a lower probability of
emotional value maximization. In the same line of thought, the
owner-manager’s estimation of the financial value might be
biased pertaining to a higher probability of financial value
maximization following the choice of the alternative. This could
be explained by the owner-manager altruism (Lubatkin, Schulze,
Ling, & Dino, 2005) or illusion of control (Schwenk, 1984) known
for skewing the manager’s perceptions. Due to altruism and
stewardship, the owner-manager might feel more optimistic
about the prospects of an alternative business or family-wise or
about his/her ability to shrug off regret if the alternative is not
performing well. Driven by altruism, the owner-manager might
not be sufficiently rigorous during future assessment processes
and pursue the wrong course of action.
Given this, the following propositions are suggested:
Proposition e: In the family business, the extent of immediate
regret will alter the owner-manager’s expectations of the
probability of maximizing value.
Proposition e1: In the family business, the extent of immediate
family-based regret will alter the owner-manager’s expectations of
the probability of maximizing emotional value.
124 G. Hirigoyen, R. Labaki / Journal of Family Business Strategy 3 (2012) 118–126
Proposition e2: In the family business, the extent of immediate
business-based regret will alter the owner-manager’s expectations
of the probability of maximizing financial value.
Returning to the conflicting manager, her/his immediate
family-based regret would translate into an erroneous perception
of the real intensity of the family-based expected regret. S/he
might feel that the expected family-based regret will be higher (or
lower) than expected, which in turn might influence the decision
by leading her/him to choosing one alternative versus the other
alternative. In the same vein, the manager might overestimate or
underestimate the expected business-based regret following the
choice of one of the existing alternatives.
Given this, the following propositions are suggested:
Proposition f: In the family business, the extent of immediate
regret will alter the owner-manager’s perceptions of the extent of
expected regret.
Proposition f1: In the family business, the extent of immediate
business-based regret will alter the owner-manager’s perceptions
of the extent of expected business-based regret.
Proposition f2: In the family business, the extent of immediate
family-based regret will alter the owner-manager’s perceptions of
the extent of expected family-based regret.
By focusing the analysis on the emotion of regret of the owner-
manager in decision-making, we contribute to extending Regret
Theory and enriching the model of emotions initially developed by
Loewenstein & Lerner (2003).
6. Conclusions and suggestions for future research
In family business literature, little attention has been devoted
to the emotions of owner-managers in decision-making. It is this
article’s contention to respond to the recent calls for research by
shedding light on this missing piece of the puzzle while focusing on
the emotion of regret. Despite the sharp increase of interest on
regret in multiple disciplines such as psychology, management,
economics and finance, no in-depth research has yet been done on
regret in the family business. We suggest setting the ground for
future studies on regret while dealing with common issues
pertaining to new and original areas of research.
By building on existing theories of choice and extending
previous models of emotions in behavioural economics to the
family business, we conceptually provide a more fine-grained
perspective on the role of the emotion of regret in family business
decision-making. We present a first characterization of regret in
the family business that introduces a dual dimension accounting
for the unique nature of family businesses. Unlike other businesses,
the owner-manager’s regret is not only conceptualized as being
experienced and expected but also as being family-based and
business-based. Building on this typology, we propose a model
with a series of propositions on the role of regret in the owner-
manager decision-making. Globally, our model indicates that the
family business manager’s decision-making is complex, pertaining
both to the expected utility function and the dual immediate and
expected regret. Departing from a business-stewardship and
family-altruistic vision of the owner-manager, we base our model
on the assumption that his/her utility function refers to the
maximization of the family business emotional value and financial
value. We outline relationships of the role different dimensions
play with respect to regret in the family business from a dynamic
perspective (Fig. 1).
This article offers several conceptual, theoretical and practical
contributions to the literature.
On the conceptual level, it adds knowledge to the family
business field through suggesting a model of the owner-manager’s
regret in decision-making. In particular, it provides an original
effort of characterization of the owner-manager’s regret as being
family and business-based. It also presents a dynamic view of
owner-manager regret that takes into account the traditional
expected regret along with the scarcely studied experienced
regret. Our conceptual model is however not exempt from
limitations that open new avenues of research.
First, the analysis we present is restrictive since it is based on
the assumption that owner-managers are stewards of their
business and altruistic towards their family, while having a unique
utility function that is aligned with the maximization of the
emotional and financial value of the family business. Taking into
account different configurations of family ownership and distinct
preferences of family managers and family stakeholders regarding
emotional versus financial value (Hirigoyen, 2009) would help
refining the analysis.
Future studies should emphasize the evolution of the expected
utility function of family stakeholders (e.g., from active to passive)
as the family spans many generations. Since family relationships
tend to weaken starting with the second generation in business
(Labaki, 2007), an in-depth analysis of the model in later stages
could be foundational for a matrix outlining the predominant
regret type of family stakeholders according to their expected
value in the family businesses. The choice made by the owner-
manager, taking into account the regret factor, may differ
depending on the characteristics of the family stakeholders. The
total family business utility function (maximisation of total value)
encompasses the maximization of the emotional value and the
financial value. Depending on the stakeholders’ interests over time,
the owner-manager may be impelled to predominantly seek to
maximize one type of value (e.g., financial value) at the detriment
of another type of value (e.g., emotional value), given the weight
that family shareholders give to each value. Sometimes the
maximization of the financial value takes over the emotional value
given the predominance of family or business-based regret. A clear
understanding of the stakeholders characteristics, regret, and
value expectations would help the manager to choose the decision
that best fits their interests in an altruistic and stewardship view.
Building on existing typologies of family business stakeholders’
expectations can be useful in that sense.
Second, the owner-manager may benefit from adequate gover-
nance mechanisms to achieve the optimal arbitrage between family-
based regret and business-based regret and contribute to the total
value maximization. We therefore suggest to introduce governance
mechanisms as moderators in our model, both at the family and the
business side, to help prevent (or at least limit) the owner-manager’s
decision to result in regret. Many family businesses focus primarily
on the business side and tend to ignore the family side. This would
still allow regret from the family system to freely ‘‘spill’’ into the
business system and hinder the expected value maximization. In
fact, recent empirical research shows that family businesses that
manage both family and business systems are more successful than
those focusing on the business side only (Basco & Pérez Rodrı́guez,
2009, 2011). In addition, setting up both formal (contractual) and
informal (relational) governance mechanisms in the family business
has a positive impact on strategic decision making (Mustakallio,
Autio, & Zahra, 2002). Among effective governance mechanisms, the
owner-manager may rely on trust (Steier, 2001), family meetings,
family plans and family councils to achieve the optimal decision
(Mustakallio et al., 2002).
Third, our model can be extended to non-family business
managers. By modelling their decision-making in a stakeholders’
perspective, the regret of non-family business managers could be
viewed as multidimensional, featuring both business-based regret
and other stakeholders-based regret.
Fourth, our series of propositions do not illustrate a specific
decision. Further insight through applications in financial deci-
sions in the family business, such as investment, financing and
 G. Hirigoyen, R. Labaki / Journal of Family Business Strategy 3 (2012) 118–126
dividends distribution decisions, or in managerial succession
decisions would expand our understanding.
Fifth, the emotion of regret can enter decision-making in other
ways not depicted in our model. Our model focused the analysis on
the emotion of regret per se. However, several extended regret
constructs exist in the literature and can add to our knowledge on
decision-making: regret aversion (Zeelenberg & Pieters, 2007),
regret learning experience (Shefrin & Statman, 1985), and regret
specificity (Pieters & Zeelenberg, 2007). Control variables not
explored in the present paper can also be included in the analysis
such as the life cycle stage (ownership structure, business
development and size, degree of family involvement in the
business) to understand how they can differently orientate the
owner-manager’s decision.
Sixth, regret is intrinsically connected to the information
regarding the choices to be made. Individuals are more likely to
recall information that is congruent rather than incongruent with
their current feelings (Bower, 1981; Isen, Shalker, Clark, & Karp,
1978). Avoiding biases in collecting, processing and selecting the
relevant information is a crucial determinant of the success of the
owner-manager endeavour in maximizing the family business
utility function. In addition, the emotional state of the owner-
manager plays an important role in biasing her/his perceptions of
the intensity of family and business-based regret. Other emotions
can therefore influence the experienced regret. According to
Schwarz and Clore (1988, 1996), managers are impelled to assess a
decision in a more positive way when they have positive emotions
(such as being happy) than when they have negative emotions
(such as being sad). Happy owner-managers adopt a top-down
processing of information that encompasses a high level of
confidence regarding existing knowledge and little attention to
details. On the opposite side, sad owner-managers adopt a bottom-
up processing of information with poor confidence in existing
knowledge and more accurate attention to detail. Johnson and
Tversky (1983) and Nygren, Isen, Taylor, and Dulin (1996) note that
serene and happy individuals tend to overestimate the probability
of occurrence of positive results and underestimate negative
results–the opposite is true for sad individuals.
On the theoretical level, this article extends Regret Theory and
behavioural economics models of emotions in decision-making
(Loewenstein & Lerner, 2003) to the family business field. On one
hand, this helps in building an emotional-based theory of the
family business, and on the other hand, contributed to broadening
the scope of these models and theories towards new implementa-
tions in the family business. Whereas other complementary
theories and models may enrich the analysis, our existing model
should also be studied on the empirical level.
As a first stage, in-depth interviews with owner-managers
during the decision-making process would enlighten our under-
standing of the emotional process and help better articulate certain
propositions. Micro-economic modelling of decisions that is
widespread in financial economics can also be implemented to
analyse the owner-manager’s decision. At a later stage, we suggest
surveys with questionnaires using scales on regret from consumer
psychology—although not excluding strong limitations such as
response bias—to be adapted to the family business setting.
Researchers should, however, be aware of the managers’ biases in
predicting future emotions, which may have negative conse-
quences on decision-making (Hirigoyen, 2008; Simon, 1945).
Furthermore, researchers should take into account the fact that
although decision-makers are often reluctant to acknowledge
regret, they may be willing to express regret at some other time
because of the expected immediate social gains (e.g., criminals
who do not show regret can expect higher sentences, which makes
expressing regrets in court both suspicious and necessary at the
same time) (Zeelenberg & Pieters, 2007). Finally, the scenarios
125
method along with neuropsychological and neuroimaging data
could prove interesting given the progress neurosciences have
made in studying emotions. For instance, researchers started
exploring regret based on magnetic resonance imaging during the
phase of choice, when the brain is anticipating possible future
consequences of decisions (Coricelli, Dolan, & Sirigu, 2007).
On the practical level, our article sets the stage for a functional
grid of analysis on regret and expected value based on our dynamic
model. By referring to our preliminary insights, owner-managers
and advisors would gain a more exhaustive understanding of the
characteristics of the decision-making process that guides them
towards achieving the desired objectives of the family business.
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