Who Has Anticipatory Feelings?

I consider a general model of decisionmaking where anticipatory feelings enter the agent's utility function in addition to physical outcomes, and allow for interactions between these two payo components. I use an equilibrium concept, personal equilibrium, that combines best response to other selves' strategies with rational expectations in the formation of feelings. A decisionmaker with feelings can exhibit informational preferences due to the insecurity she has to live with if she does not know what will happen to her, and because she might be averse to the disappointment that results if she gets a worse outcome than expected. She can also be time inconsistent because feelings pass by the time she has to `invest' in them, and she can be prone to self-ful lling expectations. The paper proves that if a decisionmaker with anticipatory feelings is distinguishable from one who only cares about physical outcomes, she has to exhibit at least one of the above phenomena. I also connect the three concepts{informational preferences, unpredictability, and time inconsistency{to the seemingly unrelated concepts of intransitivity of choice and disappointment aversion. Finally, I discuss several modeling di culties when feelings enter utility, and prove that personal equilibrium exists under general conditions. First version: May 2001. Comments are very welcome. I thank George Akerlof, Andrew Caplin, Stephen Goldman, Wei Li, M at e Matolcsi, Markus Mobius, Wolfgang Pesendorfer, Ben Polak, Attila P or, Luca Rigotti, Tanya Rosenblat, and Chris Shannon for interesting and helpful conversations.