Anticipatory Utility

Many factors that motivate us are psychological in nature, such as fear, love, self respect etc.. The paper “Psychological Expected Utility Theory” allows for such forces focusing on anticipatory utility for purposes of illustration. Many theorists felt that it was against the rules to model forces, such as fear, whose effect on standard choice behavior is indirect. It struck me with force that the same argument would rule out modeling utility, beliefs, and out-of-equilibrium strategies. Reflecting on this motivated me to become an economic data engineer. One striking application of anticipatory utility is in the paper “The Social Discount Rate” which introduced the idea of retrospective time inconsistency: regret at past self for running down current wealth.

The recursive approach to time inconsistency

Recursive optimization techniques dominate many areas of economic dynamics. However, in decision problems in which tastes change over time, the solution technique most commonly applied is not recursive, but rather strategic (subgame perfection). In this paper we take the necessary theoretical steps to make the recursive methodology applicable.

Aids policy and psychology: A mechanism-design approach

Economic theorists have given little attention to health-related externalities, such as those involved in the spread of AIDS. One reason for this is the critical role played by psychological factors, such as fear of testing. We develop a model that acknowledges this form of fear and design a mechanism that not only encourages testing but also slows the spread of the disease through voluntary transmission.

Psychological expected utility theory and anticipatory feelings

We extend expected utility theory to situations in which agents experience feelings of anticipation prior to the resolution of uncertainty. We show how these anticipatory feelings may result in time inconsistency.