Anticipation and the Valuation of Delayed Consumption

TLDR

The paper develops a model of intertemporal choice that incorporates anticipation and dread of delayed consumption, and explores its implications for savings behavior, discount‑rate estimation, and policies to curb myopia. The authors construct a utility framework that adds anticipation and dread terms to the standard intertemporal choice model. The model shows that positive time preference can lead to delaying desirable outcomes or preferring unpleasant outcomes, and explains violations of the independence axiom in intertemporal choice. © 1987 Royal Economic Society.

Abstract

This paper presents a model of intertemporal choice that incorporates and dread-i.e., utility from anticipat ion of delayed consumption. The model explains why an individual with positive time preference may delay desirable outcomes or get unpleas ant outcomes over with quickly, contrary to the prediction of convent ional formulations of intertemporal choice. Implications of savoring and dread for savings behavior, empirical estimation of discount rate s, and public policy efforts to combat myopic behavior are explored. The model provides an explanation for common violations of the indepe ndence axiom as applied to intertemporal choice. Copyright 1987 by Royal Economic Society.