Anticipatory Emotions, Risk and Time Preferences

Background: Economists and psychologists have long investigated risk preferences—decisions in which one or more options have uncertain payoffs—and time preferences—decisions about outcomes that will occur in the present versus future. Countless economically significant anomalies have been discovered around both kinds of choices. However, the interaction between these processes has been much less investigated, with only a few recent articles broaching this topic, in comparison to the thousands of articles looking at risk and time preferences in isolation. This is a major omission because many of the most important decisions we make concern risks that will only be realized in the future.

Description: This research tackles two questions at the confluence of risk and time preferences.
1. To what extent do anticipatory emotions—such as dread and savoring—influence the risky decision we make in the future? We hypothesize that for risky decisions with heavy potential downsides, people are more risk-averse for decision that take place in the future. Since people are ordinarily risk-seeking for losses (a prediction of loss aversion in Prospect Theory), this would lead such decisions to be more “rational” in keeping with expected utility theory. We predict the converse for gains.
2. When contemplating uncertain future outcomes, can we alter our expectations to maintain optimism while avoiding disappointment? Some emotion researchers have argued that when an uncertain event takes place in the distant future, people are overly optimistic about that event, becoming more realistic as the event approaches. However, it is unknown whether this strategy effectively buffers people against disappointment. This is important because our expectations about the future shape our decisions.