Psychological Expected Utility Theory and Anticipatory Feelings

We all experience feelings related to our uncertainty about the future, such as hopefulness, anxiety, and suspense. Psychologists have long recognized the importance of these anticipatory emotions, with anxiety theory being one of the most dynamic Želds of psychological research. Economists, in contrast, have paid little attention to the anticipatory emotions, and what attention has been paid has been limited to the case of a certain future, as in Jevons [1905] and Loewenstein [1987].1 Loewenstein builds a model to explain why one might bring forward an unpleasant experience to shorten the period of dread, yet delay a pleasant experience in order to savor it. Since his model is deterministic, it is ill-suited to capturing anticipatory emotions, such as anxiety, that are predicated on an uncertain future. In this paper we provide a new model of decision making under uncertainty in which we allow for a quite general class of anticipatory emotions. While our general theory is relatively unstructured, it nevertheless delivers novel results in almost all areas of application, in part due to the time inconsistency of individual preferences. Time inconsistency arises naturally in the presence of anticipation. As time passes, so do anticipatory emotions, and preferences may change as a result.