### Abstract

A common finding in stated preference studies that measure the value of travel time (VTT), is that the measured per-minute VTT increases with the size of the time change considered, in conflict with standard neoclassical theory. The current paper tests prospect theory as a possible explanation: More specifically, whether the phenomenon is generated by preferences being reference-dependent and exhibiting diminishing sensitivity for gains and losses, with a stronger degree of diminishing sensitivity for money than for travel time.

We use stated preference data with trade-offs between travel time and money that pro- vide identification of the degrees of diminishing sensitivity for time and money gains and losses, thus enabling us to test and potentially falsify the prospect theory explanation. We apply a discrete choice model, in which choice depends on a reference-free value of travel time and reference-dependent value functions for time and money, allowing for loss aver- sion and different degrees of diminishing sensitivity for gains and losses. We use semi- parametric local logit estimates of the equi-probability curves in the data to test the model’s appropriateness, and estimate its parameters using a mixed logit approach. Our results sup- port the prospect theory explanation.

We use stated preference data with trade-offs between travel time and money that pro- vide identification of the degrees of diminishing sensitivity for time and money gains and losses, thus enabling us to test and potentially falsify the prospect theory explanation. We apply a discrete choice model, in which choice depends on a reference-free value of travel time and reference-dependent value functions for time and money, allowing for loss aver- sion and different degrees of diminishing sensitivity for gains and losses. We use semi- parametric local logit estimates of the equi-probability curves in the data to test the model’s appropriateness, and estimate its parameters using a mixed logit approach. Our results sup- port the prospect theory explanation.

Original language | English |
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Publication date | 2011 |

Publication status | Published - 2011 |

Event | International Choice Modelling Conference 2011 - Leeds, United Kingdom Duration: 4 Jul 2011 → 6 Jul 2011 Conference number: 2 |

### Conference

Conference | International Choice Modelling Conference 2011 |
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Number | 2 |

Country | United Kingdom |

City | Leeds |

Period | 04/07/2011 → 06/07/2011 |

## Cite this

Hjorth, K., & Fosgerau, M. (2011).

*Using prospect theory to investigate the low value of travel time for small time changes*. Paper presented at International Choice Modelling Conference 2011, Leeds, United Kingdom.