Vol 10 No 4 (2010)
Vol 10 No 4 (2010)
Articles
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Prospect theory, a descriptive approach of modelling individual choice making which has been applied in a range of contexts, has recently attracted the interest of transport academics and professionals and is seen by many as a promising framework for travel behaviour modelling. This special issue follows a seminar on prospect theory and its applications to transport held in Delft at October 2009. It features a selection of carefully reviewed papers that were presented at the seminar. This special issue aims to expose the reader to the recent developments in this field and to some particularly relevant theoretical discussions, potential applications and critical views of prospect theory and its potential applications in the study of travel behaviour.
Prospect theory, a descriptive approach of modelling individual choice making which has been applied in a range of contexts, has recently attracted the interest of transport academics and professionals and is seen by many as a promising framework for travel behaviour modelling. This special issue follows a seminar on prospect theory and its applications to transport held in Delft at October 2009. It features a selection of carefully reviewed papers that were presented at the seminar. This special issue aims to expose the reader to the recent developments in this field and to some particularly relevant theoretical discussions, potential applications and critical views of prospect theory and its potential applications in the study of travel behaviour.
Prospect theory, a descriptive approach of modelling individual choice making which has been applied in a range of contexts, has recently attracted the interest of transport academics and professionals and is seen by many as a promising framework for travel behaviour modelling. This special...
Erel Avineri, Caspar G. Chorus -
Utility Theory is commonly considered as the most useful descriptive theory of human choice behaviour. Alternative concepts are only incidentally considered. This paper reviews alternative assumptions and empirical findings about human choice behaviour. To facilitate comparison and synthesis the review starts with the proposal of a generic framework of choice behaviour. The micro-economic assumptions of Utility Theory and Prospect Theory are then mapped onto this framework. These are compared with each other and other assumptions against the background of theoretical and empirical findings from behavioural economics, several other social disciplines and transport sciences. An extension of Prospect Theory with assumptions about the valuation of attributes and the employment of different decision rules yields a functional concept of choice behaviour that is able to describe most of the reviewed empirical findings to a larger extent than Utility Theory.
Utility Theory is commonly considered as the most useful descriptive theory of human choice behaviour. Alternative concepts are only incidentally considered. This paper reviews alternative assumptions and empirical findings about human choice behaviour. To facilitate comparison and synthesis the review starts with the proposal of a generic framework of choice behaviour. The micro-economic assumptions of Utility Theory and Prospect Theory are then mapped onto this framework. These are compared with each other and other assumptions against the background of theoretical and empirical findings from behavioural economics, several other social disciplines and transport sciences. An extension of Prospect Theory with assumptions about the valuation of attributes and the employment of different decision rules yields a functional concept of choice behaviour that is able to describe most of the reviewed empirical findings to a larger extent than Utility Theory.
Utility Theory is commonly considered as the most useful descriptive theory of human choice behaviour. Alternative concepts are only incidentally considered. This paper reviews alternative assumptions and empirical findings about human choice behaviour. To facilitate comparison and synthesis...
Evert Jan van de Kaa -
The importance of willingness to pay (WTP) and its counterpart willingness to accept (WTA), in the evaluation of policy measures has led to a constant stream of research examining survey methods and model specifications seeking to capture and explain the concept of marginal rates of substitution as much as possible. Stated choice experiments pivoted around a reference alternative allow the specification of discrete choice models to accommodate aspects of Prospect Theory, in the particular reference dependence. This permits an investigation of theories related to loss aversion and diminishing sensitivitywidely documented within the literature. This paper seeks to examine a number of theoretical developments. In particular, the paper seeks to empirically examine a number of aspects related to decision making processes that are posited to exist by Prospect Theory, namely reference dependence, loss aversion and diminishing sensitivities. Unlike previous research which has examined these issues in the past, we examine these assumptions on WTP/WTA rather than on the marginal utilities of decision makers. In doing this, the paper simultaneously compares and contrasts different econometric forms, in particular estimating models in preference space with WTP/WTAs calculated post estimation versus models estimated directly in WTP/WTA space where WTP/WTAvalues are directly during estimation. We find evidence for reference dependence and loss aversion in WTP/WTA for different time attributes, however we find less compelling evidence for the existence of diminishing WTP/WTAs.
The importance of willingness to pay (WTP) and its counterpart willingness to accept (WTA), in the evaluation of policy measures has led to a constant stream of research examining survey methods and model specifications seeking to capture and explain the concept of marginal rates of substitution as much as possible. Stated choice experiments pivoted around a reference alternative allow the specification of discrete choice models to accommodate aspects of Prospect Theory, in the particular reference dependence. This permits an investigation of theories related to loss aversion and diminishing sensitivitywidely documented within the literature. This paper seeks to examine a number of theoretical developments. In particular, the paper seeks to empirically examine a number of aspects related to decision making processes that are posited to exist by Prospect Theory, namely reference dependence, loss aversion and diminishing sensitivities. Unlike previous research which has examined...
The importance of willingness to pay (WTP) and its counterpart willingness to accept (WTA), in the evaluation of policy measures has led to a constant stream of research examining survey methods and model specifications seeking to capture and explain the concept of marginal rates of...
John M. Rose, Lorenzo Masiero -
Stated choice surveys may be the most common approach to obtain monetary values of travel time. The large surveys of 1988 and 1997 in the Netherlands and of 1994 in the United Kingdom produced some puzzling outcomes, such as differences in monetary valuation between travel time gains and losses. This has given rise to controversies about the behaviour that might have caused this ‘sign effect’, which are not decisively settled. This paper shows that Prospect Theory and the heuristic judgment concept as developed in behavioural sciences can shed more light on these controversies2. It starts with an introduction of some basic principles of these lines of work before re-examining the Dutch and UK surveys from these points of view. It is concluded that the sign effect is not caused by biases that stem from heuristic judgment but follows from lossaversive valuation of time and money attributes as assumed in Prospect Theory.
Stated choice surveys may be the most common approach to obtain monetary values of travel time. The large surveys of 1988 and 1997 in the Netherlands and of 1994 in the United Kingdom produced some puzzling outcomes, such as differences in monetary valuation between travel time gains and losses. This has given rise to controversies about the behaviour that might have caused this ‘sign effect’, which are not decisively settled. This paper shows that Prospect Theory and the heuristic judgment concept as developed in behavioural sciences can shed more light on these controversies2. It starts with an introduction of some basic principles of these lines of work before re-examining the Dutch and UK surveys from these points of view. It is concluded that the sign effect is not caused by biases that stem from heuristic judgment but follows from lossaversive valuation of time and money attributes as assumed in Prospect Theory.
Stated choice surveys may be the most common approach to obtain monetary values of travel time. The large surveys of 1988 and 1997 in the Netherlands and of 1994 in the United Kingdom produced some puzzling outcomes, such as differences in monetary valuation between travel time gains and...
Evert Jan van de Kaa -
This paper reflects on the relevance of prospect theory for transportation research. By discussing the original purpose and context of this theory of risky choice and the models that have been derived from the theory, the shortcomings and boundaries of the theory are discussed. It is argued that many applications in transportation and travel behaviour research may have stretched the domain of this theory too much, and that the theory lacks the necessary set of mechanisms and concepts to serve as a comprehensive theory of repeated travel choices under uncertainty. The discussion of shortcomings may serve to define a research agenda for further developing operational choice models.
This paper reflects on the relevance of prospect theory for transportation research. By discussing the original purpose and context of this theory of risky choice and the models that have been derived from the theory, the shortcomings and boundaries of the theory are discussed. It is argued that many applications in transportation and travel behaviour research may have stretched the domain of this theory too much, and that the theory lacks the necessary set of mechanisms and concepts to serve as a comprehensive theory of repeated travel choices under uncertainty. The discussion of shortcomings may serve to define a research agenda for further developing operational choice models.
This paper reflects on the relevance of prospect theory for transportation research. By discussing the original purpose and context of this theory of risky choice and the models that have been derived from the theory, the shortcomings and boundaries of the theory are discussed. It is argued...
Harry Timmermans -
This paper is the final paper of a special issue on Prospect Theory (PT) and its applications in travel behaviour research. It is largely (but not exclusively) based on discussions held during a seminar that took place on the 8th of October 2009. The paper presents some personal reflections based on the discussion subjects on the use of PT in the area of travel behaviour research, clustered by the position of PT as a theory, applications of PT, future research, and relevance for policy making. The most important conclusion of the papers are firstly that PT, in addition to other theories like Utility Theory (UT), can help to improve our understanding of choices in the area of travel behaviour. The concepts of loss aversion and reference points are especially useful. A second important conclusion is that PT is not the only theory challenging UT. For example Regret Theory and the concept of Bounded Rationality also challenge PT. In addition, some of the premises of PT, at least the importance of some reference points, are not exclusively the domain of PT, but also that of other theories, including UT. Thirdly, it is important to realize that critics of Utility Theory (UT) as it is used in specific studies related to travel behaviour are not necessarily critics of UT in general. Fourth, it seems better to focus on the distinguishing premises of PT than on the theory as a fully fledged alternative to UT. A fifth outcome is that PT can be used both to increase our understanding of travel behaviour, as well as for the evaluation of the outcomes of models. A final outcome is that there is no need to choose a theory before collecting the data.
This paper is the final paper of a special issue on Prospect Theory (PT) and its applications in travel behaviour research. It is largely (but not exclusively) based on discussions held during a seminar that took place on the 8th of October 2009. The paper presents some personal reflections based on the discussion subjects on the use of PT in the area of travel behaviour research, clustered by the position of PT as a theory, applications of PT, future research, and relevance for policy making. The most important conclusion of the papers are firstly that PT, in addition to other theories like Utility Theory (UT), can help to improve our understanding of choices in the area of travel behaviour. The concepts of loss aversion and reference points are especially useful. A second important conclusion is that PT is not the only theory challenging UT. For example Regret Theory and the concept of Bounded Rationality also challenge PT. In addition, some of the premises of PT, at least the...
This paper is the final paper of a special issue on Prospect Theory (PT) and its applications in travel behaviour research. It is largely (but not exclusively) based on discussions held during a seminar that took place on the 8th of October 2009. The paper presents some personal reflections...
Bert van Wee