Intangibility in intertemporal choice

Abstract

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 trade-offs between costs and benefits occurring at different points in time. While this explicit trade-off 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 trade-offs 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 this latte). We propose that people rely on anticipatory emotions as a proxy for intangible outcomes when trade-offs are implicit. This paper reviews neuroeconomic evidence that has begun to elucidate the role of anticipatory emotions in decisions involving intangible outcomes. Although 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 trade-offs are ill defined.Keywords: neuroeconomics; behavioural economics; intertemporal choice; tangibility; consumer behaviourThe qualities most useful to ourselves are, first of all, superior reasons and understanding, by which we are capable of discerning the remote consequences of all our actions, and of foreseeing the advantage or detriment which is likely to result from them; and, secondly, self-command, by which we are enabled to abstain from present pleasure or to endure present pain, in order to obtain a greater pleasure or to avoid a greater pain in some future time. In the union of those two qualities consists the virtue of prudence, of all the virtues that which is most useful to the individual. Smith (1759Smith ( [1981), pp. 271-272, Theory of moral sentiments.

Episodic future thinking and episodic counterfactual thinking: Intersections between memory and decisions

“…This psychological property becomes important when people have to choose between options that would pay off after different delays: people tend to prefer smaller rewards that they can receive immediately (e.g., $10 today) over larger rewards that they would only get later (e.g., $13 in a week). A possible reason for our tendency to devalue delayed rewards is that, at the moment of the choice, we do not experience the emotional impact associated with the future reward option (e.g., Rick and Loewenstein, 2008). …”

A Critical Role for the Hippocampus in the Valuation of Imagined Outcomes

“…A long time ago, Aristotle pointed out that “when some desirable object is not actually present to our senses, exerting its pull on us directly, our motivation to strive to obtain it is driven by our awareness of its (memory or fantasy) image” [9]. Along the same lines, some more recent authors suggested that imagining future situations might help in providing a motivation that counters the attraction of immediate pleasures [10]–[12]. Imagining future situations involves recomposing elements stored in episodic memory and hence recruiting the medial temporal lobe (MTL) regions.…”

Neural Systems Underlying Individual Differences in Intertemporal Decision-making

“…Notably, Component 3 also incorporates substantial activity in the dorsal and ventral striatum, regions implicated in reward-based decision making processes (Balleine, Delgado, & Hikosaka, 2007; Kable & Glimcher, 2007). The association of less activity within this component with more impulsive choices supports the contention that impulsive choice behavior is related to diminished influence of executive control mechanisms, which override the tangible value of immediate rewards to enable the choice of less tangible but larger delayed rewards (Rick & Loewenstein, 2008). The lateral frontal, anterior cingulate and parietal regions of the Component 3 network (Fig.…”

“…Cognitive control may enable prospective processes to “find” and value delayed rewards (Benoit, Gilbert, & Burgess, 2011; Kurth-Nelson, Bickel, & Redish, 2012; J. Peters & Buchel, 2010; Rick & Loewenstein, 2008). The recent demonstration that a network of lateral prefrontal, dorsomedial prefrontal, and parietal brain regions convert subjective value information from value-encoding regions into actual choices is consistent with this idea (Rodriguez, Turner, Van Zandt, & McClure, 2015).…”