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Using prospect theory to investigate the low marginal value of travel time for small time changes

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  • Hjorth, Katrine
  • Fosgerau, Mogens

Abstract

A common finding in stated preference studies that measure the value of travel time (VTT) is that the measured VTT increases with the size of the time change considered, in conflict with standard neoclassical economic theory. We present a new test of a possible explanation for the phenomenon that builds on the diminishing or constant sensitivity of the value functions in prospect theory. We use stated preference data with trade-offs between travel time and money that provide separate identification of the degrees of diminishing sensitivity for time and money gains and losses. This enables us to test and potentially falsify the prospect theory explanation. We conclude that prospect theory remains a potential explanation of the phenomenon.

Suggested Citation

  • Hjorth, Katrine & Fosgerau, Mogens, 2012. "Using prospect theory to investigate the low marginal value of travel time for small time changes," MPRA Paper 42246, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:42246
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    Cited by:

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    2. Paul Koster & Hans Koster, 2013. "Commuters' Preferences for Fast and Reliable Travel," Tinbergen Institute Discussion Papers 13-075/VIII, Tinbergen Institute, revised 30 Apr 2015.
    3. Geng, Kexin & Wang, Yacan & Cherchi, Elisabetta & Guarda, Pablo, 2023. "Commuter departure time choice behavior under congestion charge: Analysis based on cumulative prospect theory," Transportation Research Part A: Policy and Practice, Elsevier, vol. 168(C).
    4. Kim, Nam Seok & Yook, Donghyung, 2018. "Enhancing the economic benefit assessment of roadway investment through the application of value of time by trip length," Transport Policy, Elsevier, vol. 68(C), pages 28-36.
    5. Kemel, Emmanuel & Paraschiv, Corina, 2013. "Prospect Theory for joint time and money consequences in risk and ambiguity," Transportation Research Part B: Methodological, Elsevier, vol. 56(C), pages 81-95.
    6. Koster, Paul R. & Koster, Hans R.A., 2015. "Commuters’ preferences for fast and reliable travel: A semi-parametric estimation approach," Transportation Research Part B: Methodological, Elsevier, vol. 81(P1), pages 289-301.
    7. Obermeyer, Andy & Treiber, Martin & Evangelinos, Christos, 2015. "On the identification of thresholds in travel choice modelling," Journal of choice modelling, Elsevier, vol. 17(C), pages 1-9.
    8. Wiktor Budziński & Danny Campbell & Mikołaj Czajkowski & Urška Demšar & Nick Hanley, 2018. "Using Geographically Weighted Choice Models to Account for the Spatial Heterogeneity of Preferences," Journal of Agricultural Economics, Wiley Blackwell, vol. 69(3), pages 606-626, September.
    9. Maria Börjesson, 2014. "Inter-temporal variation in the travel time and travel cost parameters of transport models," Transportation, Springer, vol. 41(2), pages 377-396, March.
    10. Small, Kenneth A., 2012. "Valuation of travel time," Economics of Transportation, Elsevier, vol. 1(1), pages 2-14.
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    More about this item

    Keywords

    Value of travel time; Stated preference data; Prospect theory; Small time savings;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
    • R41 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Transportation: Demand, Supply, and Congestion; Travel Time; Safety and Accidents; Transportation Noise

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