Prospect Theory and its Applications to the Modelling of Travel Choice

Abstract

Purpose

This chapter explores Prospect Theory — a descriptive model of modelling individual choice making under risk and uncertainty, and its applications to a range of travel behaviour contexts.

Theory

The chapter provides background on Prospect Theory, its basic assumptions and formulations, and summarises some of its theoretical developments, applications and evidence in the field of transport research.

Findings

A body of empirical evidence has accumulated showing that the principle of maximisation of expected utility provides limited explanation of travel choices under risk and uncertainty. Prospect Theory can be seen as an alternative and promising framework for travel choice modelling (although not without theoretical and practical controversy). These findings are supported by empirical observations reported in the literature reviewed in this chapter.

Originality and value

The chapter provides a detailed account of the design and results of accumulated research in travel behaviour research that is based on Prospect Theory’s observations, insights and formulations. The potential of Prospect Theory for particular decision-making in travel behaviour research is articulated, main findings are presented and discussed, and limitations are identified, leading to further research needs.

Citation

Avineri, E. and Ben-Elia, E. (2015), "Prospect Theory and its Applications to the Modelling of Travel Choice", Rasouli, S. and Timmermans, H. (Ed.) Bounded Rational Choice Behaviour: Applications in Transport, Emerald Group Publishing Limited, Leeds, pp. 233-256. https://doi.org/10.1108/978-1-78441-072-820151015