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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.

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File URL: http://mpra.ub.uni-muenchen.de/42246/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 42246.

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Date of creation: 2012
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Handle: RePEc:pra:mprapa:42246

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Keywords: Value of travel time; Stated preference data; Prospect theory; Small time savings;

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  1. Cantillo, Víctor & Heydecker, Benjamin & de Dios Ortúzar, Juan, 2006. "A discrete choice model incorporating thresholds for perception in attribute values," Transportation Research Part B: Methodological, Elsevier, vol. 40(9), pages 807-825, November.
  2. Kenneth Train, 2003. "Discrete Choice Methods with Simulation," Online economics textbooks, SUNY-Oswego, Department of Economics, number emetr2, Spring.
  3. Fosgerau, Mogens, 2007. "Using nonparametrics to specify a model to measure the value of travel time," MPRA Paper 12009, University Library of Munich, Germany.
  4. Lars Hultkrantz & Reza Mortazavi, 2001. "Anomalies in the Value of Travel-Time Changes," Journal of Transport Economics and Policy, London School of Economics and University of Bath, vol. 35(2), pages 285-299, May.
  5. Axhausen, Kay W. & Hess, Stephane & König, Arnd & Abay, Georg & Bates, John J. & Bierlaire, Michel, 2008. "Income and distance elasticities of values of travel time savings: New Swiss results," Transport Policy, Elsevier, vol. 15(3), pages 173-185, May.
  6. Henry Stott, 2006. "Cumulative prospect theory's functional menagerie," Journal of Risk and Uncertainty, Springer, vol. 32(2), pages 101-130, March.
  7. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
  8. De Borger, Bruno & Fosgerau, Mogens, 2008. "The trade-off between money and travel time: A test of the theory of reference-dependent preferences," Journal of Urban Economics, Elsevier, vol. 64(1), pages 101-115, July.
  9. Tversky, Amos & Kahneman, Daniel, 1991. "Loss Aversion in Riskless Choice: A Reference-Dependent Model," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1039-61, November.
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Cited by:
  1. 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.
  2. 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.
  3. Chen, Peng & Nie, Yu (Marco), 2013. "Bicriterion shortest path problem with a general nonadditive cost," Transportation Research Part B: Methodological, Elsevier, vol. 57(C), pages 419-435.

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