IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

Prospect Theory for joint time and money consequences in risk and ambiguity

  • Kemel, Emmanuel
  • Paraschiv, Corina
Registered author(s):

    Transport users face complex decisions. Not only are the consequences of their choices uncertain, but they generally involve several attributes, such as time and money. Time-money tradeoffs have been studied in depth in transport economics, and research is now paying increasing attention to the role of uncertainty and information in transport decisions. This paper aims to measure the impact of uncertainty and information on multi-attribute decisions using Prospect Theory. In doing so, the study makes two contributions to transportation literature: one methodological and the other empirical. First, we propose a fast and tractable method for measuring Prospect Theory parameters that capture attitudes towards probabilities (probability weighting function) and attitudes towards losses (loss aversion). The elicitation method does not require the elicitation of the utility function. This makes it particularly suitable in complex multi-attribute decisions where the shape of the utility function is unknown. Second, we present the results of an experiment that uses the proposed method to measure, at the individual level, probability weighting in decisions involving joint time and money consequences in two decision contexts: risk (where probabilities are given) and ambiguity (where the probability distribution is unknown). An experimental setup that exposes subjects to real gains and losses for money and time has been built for this purpose. We observe inverse S-shaped probability weighting and loss aversion for risk. Probability weighting is even more pronounced in ambiguity, where subjects do not have precise information about the probability distribution. We explain how these results and the analysis of ambiguity attitudes in general can offer a better understanding of travelers’ route or transport mode choices.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://www.sciencedirect.com/science/article/pii/S0191261513001227
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Article provided by Elsevier in its journal Transportation Research Part B: Methodological.

    Volume (Year): 56 (2013)
    Issue (Month): C ()
    Pages: 81-95

    as
    in new window

    Handle: RePEc:eee:transb:v:56:y:2013:i:c:p:81-95
    DOI: 10.1016/j.trb.2013.07.007
    Contact details of provider: Web page: http://www.elsevier.com/wps/find/journaldescription.cws_home/548/description#description

    Order Information: Postal: http://www.elsevier.com/wps/find/supportfaq.cws_home/regional
    Web: https://shop.elsevier.com/order?id=548&ref=548_01_ooc_1&version=01

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Tversky, Amos & Kahneman, Daniel, 1992. "Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
    2. 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.
    3. Train,Kenneth E., 2009. "Discrete Choice Methods with Simulation," Cambridge Books, Cambridge University Press, number 9780521766555, September.
    4. Laetitia Placido & Olivier L'Haridon, 2008. "Betting on Machina's reflection example : An experiment on Ambiguity," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00645887, HAL.
    5. Hey, John D & Orme, Chris, 1994. "Investigating Generalizations of Expected Utility Theory Using Experimental Data," Econometrica, Econometric Society, vol. 62(6), pages 1291-1326, November.
    6. Andre Palma & Moshe Ben-Akiva & David Brownstone & Charles Holt & Thierry Magnac & Daniel McFadden & Peter Moffatt & Nathalie Picard & Kenneth Train & Peter Wakker & Joan Walker, 2008. "Risk, uncertainty and discrete choice models," Marketing Letters, Springer, vol. 19(3), pages 269-285, December.
      • André de Palma & Moshe Ben-Akiva & David Brownstone & Charles Holt & Thierry Magnac & Daniel McFadden & Peter Moffatt & Nathalie Picard & Kenneth Train & Peter Wakker & Joan Walker, 2008. "Risk, Uncertainty and Discrete Choice Models," THEMA Working Papers 2008-02, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    7. Guotao Hu & Aruna Sivakumar & John Polak, 2012. "Modelling travellers’ risky choice in a revealed preference context: a comparison of EUT and non-EUT approaches," Transportation, Springer, vol. 39(4), pages 825-841, July.
    8. Adrian Bruhin & Helga Fehr-Duda & Thomas Epper, 2007. "Risk and Rationality: Uncovering Heterogeneity in Probability Distortion," SOI - Working Papers 0705, Socioeconomic Institute - University of Zurich, revised Jul 2007.
    9. Ben-Elia, Eran & Shiftan, Yoram, 2010. "Which road do I take? A learning-based model of route-choice behavior with real-time information," Transportation Research Part A: Policy and Practice, Elsevier, vol. 44(4), pages 249-264, May.
    10. Xu, Hongli & Lou, Yingyan & Yin, Yafeng & Zhou, Jing, 2011. "A prospect-based user equilibrium model with endogenous reference points and its application in congestion pricing," Transportation Research Part B: Methodological, Elsevier, vol. 45(2), pages 311-328, February.
    11. Keeney,Ralph L. & Raiffa,Howard, 1993. "Decisions with Multiple Objectives," Cambridge Books, Cambridge University Press, number 9780521438834, September.
    12. Wakker,Peter P., 2010. "Prospect Theory," Cambridge Books, Cambridge University Press, number 9780521748681, September.
    13. Drazen Prelec, 1998. "The Probability Weighting Function," Econometrica, Econometric Society, vol. 66(3), pages 497-528, May.
    14. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
    15. Eran Ben-Elia & Ido Erev & Yoram Shiftan, 2008. "The combined effect of information and experience on drivers’ route-choice behavior," Transportation, Springer, vol. 35(2), pages 165-177, March.
    16. Lindsey, Robin, 2010. "State-dependent congestion pricing with reference-dependent preferences," Working Papers 2010-4, University of Alberta, Department of Economics.
    17. Hensher, David A. & Greene, William H. & Li, Zheng, 2011. "Embedding risk attitude and decision weights in non-linear logit to accommodate time variability in the value of expected travel time savings," Transportation Research Part B: Methodological, Elsevier, vol. 45(7), pages 954-972, August.
    18. Robert B. Noland & John W. Polak, 2002. "Travel time variability: A review of theoretical and empirical issues," Transport Reviews, Taylor & Francis Journals, vol. 22(1), pages 39-54, January.
    19. Erel Avineri & Joseph Prashker, 2006. "The Impact of Travel Time Information on Travelers’ Learning under Uncertainty," Transportation, Springer, vol. 33(4), pages 393-408, 07.
    20. Mohammed Abdellaoui & Han Bleichrodt & Olivier L’Haridon, 2008. "A tractable method to measure utility and loss aversion under prospect theory," Journal of Risk and Uncertainty, Springer, vol. 36(3), pages 245-266, June.
    21. Tomomi Tanaka & Colin F. Camerer & Quang Nguyen, 2010. "Risk and Time Preferences: Linking Experimental and Household Survey Data from Vietnam," American Economic Review, American Economic Association, vol. 100(1), pages 557-71, March.
    22. Henry Stott, 2006. "Cumulative prospect theory's functional menagerie," Journal of Risk and Uncertainty, Springer, vol. 32(2), pages 101-130, March.
    23. Connors, Richard D. & Sumalee, Agachai, 2009. "A network equilibrium model with travellers' perception of stochastic travel times," Transportation Research Part B: Methodological, Elsevier, vol. 43(6), pages 614-624, July.
    24. repec:hal:journl:hal-00609214 is not listed on IDEAS
    25. Aurélien Baillon & Laure Cabantous & Peter Wakker, 2012. "Aggregating imprecise or conflicting beliefs: An experimental investigation using modern ambiguity theories," Journal of Risk and Uncertainty, Springer, vol. 44(2), pages 115-147, April.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:eee:transb:v:56:y:2013:i:c:p:81-95. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.