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

Katrine Hjorth, Mogens Fosgerau

    Research output: Contribution to conferencePaperResearchpeer-review

    317 Downloads (Pure)


    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.

    Original languageEnglish
    Publication date2011
    Publication statusPublished - 2011
    EventInternational Choice Modelling Conference 2011 - Leeds, United Kingdom
    Duration: 4 Jul 20116 Jul 2011
    Conference number: 2


    ConferenceInternational Choice Modelling Conference 2011
    CountryUnited Kingdom


    Dive into the research topics of 'Using prospect theory to investigate the low value of travel time for small time changes'. Together they form a unique fingerprint.

    Cite this