Intangibility in Intertemporal Choice
25 Pages Posted: 10 Jan 2008 Last revised: 7 Apr 2008
Date Written: April 1, 2008
Since the advent of the discounted utility (DU) model economists have thought about intertemporal choice in very specific terms. DU assumes that people make explicit tradeoffs between costs and benefits occurring at different points in time. While this explicit tradeoff perspective is simple and tractable, and has stimulated productive research, it does not provide a very realistic representation of a wide range of the most important intertemporal tradeoffs that people face in daily life. If one considers the most important and commonly discussed examples of intertemporal choices, a striking pattern emerges: In almost all cases, early outcomes tend to be concrete (e.g., purchasing this latte), but later outcomes tend to be much less tangible (e.g., the unknown item that could have been purchased later with the money spent on the latte). We propose that people rely on anticipatory emotions as a proxy for intangible outcomes when tradeoffs are implicit. This paper reviews neuroeconomic evidence that has begun to elucidate the role of anticipatory emotions in decisions involving intangible outcomes. Although the most progress has been made in the domain of spending and saving, we discuss how the existing neuroeconomic research could be extended to other domains where tradeoffs are ill-defined.
Keywords: Intertemporal Choice, Discounted Utility, Tradeoffs, Tangibility, Emotion
JEL Classification: A12, B30, B40, C91, D91, E21, M31
Suggested Citation: Suggested Citation