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Regret minimization or utility maximization: it depends on the attribute

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  • Caspar G Chorus
  • John M Rose
  • David A Hensher

Abstract

In this study we show how the coexistence of different decision rules can be accommodated in discrete choice models. Specifically, in this paper we present a generic hybrid model specification that allows for some attributes being processed using conventional linear-additive utility-maximization-based rules, while others are being processed using regret-minimization-based rules. We show that on two revealed and stated choice datasets particular specifications of hybrid models, containing both regret-based and utility-based attribute decision rules, outperform—in terms of model fit and out-of-sample predictive ability—choice models where all attributes are assumed to be processed by means of one and the same decision rule. However, in our data differences between models are very small. Implications, in terms of marginal willingness-to-pay measures (WtP), are derived for the different hybrid model specifications and applied in the context of the two datasets. It is found that in the context of our data hybrid WtP measures differ substantially from conventional utility-based WtP measures, and that the hybrid WtP specifications allow for a richer (choice-set-specific) interpretation of the trade-offs that people make. Keywords: random regret, random utility, hybrid choice models, willingness to pay

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  • Caspar G Chorus & John M Rose & David A Hensher, 2013. "Regret minimization or utility maximization: it depends on the attribute," Environment and Planning B: Planning and Design, Pion Ltd, London, vol. 40(1), pages 154-169, January.
  • Handle: RePEc:pio:envirb:v:40:y:2013:i:1:p:154-169
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    1. repec:kap:transp:v:44:y:2017:i:5:d:10.1007_s11116-016-9691-9 is not listed on IDEAS
    2. Chorus, Caspar G., 2014. "A Generalized Random Regret Minimization model," Transportation Research Part B: Methodological, Elsevier, vol. 68(C), pages 224-238.
    3. van Cranenburgh, Sander & Guevara, Cristian Angelo & Chorus, Caspar G., 2015. "New insights on random regret minimization models," Transportation Research Part A: Policy and Practice, Elsevier, vol. 74(C), pages 91-109.
    4. Chorus, Caspar & van Cranenburgh, Sander & Dekker, Thijs, 2014. "Random regret minimization for consumer choice modeling: Assessment of empirical evidence," Journal of Business Research, Elsevier, vol. 67(11), pages 2428-2436.
    5. Shi An & Ze Wang & Jianxun Cui, 2015. "Integrating Regret Psychology to Travel Mode Choice for a Transit-Oriented Evacuation Strategy," Sustainability, MDPI, Open Access Journal, vol. 7(7), pages 1-16, June.
    6. Kim, Jinhee & Rasouli, Soora & Timmermans, Harry, 2017. "Satisfaction and uncertainty in car-sharing decisions: An integration of hybrid choice and random regret-based models," Transportation Research Part A: Policy and Practice, Elsevier, vol. 95(C), pages 13-33.
    7. Hess, Stephane & Stathopoulos, Amanda, 2013. "A mixed random utility — Random regret model linking the choice of decision rule to latent character traits," Journal of choice modelling, Elsevier, vol. 9(C), pages 27-38.
    8. Caspar G. Chorus, 2014. "Capturing alternative decision rules in travel choice models: a critical discussion," Chapters,in: Handbook of Choice Modelling, chapter 13, pages 290-310 Edward Elgar Publishing.

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