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Experts respond to the same incentives as people in other areas of human action, and in the same ways. This insight is a truism: Experts are ordinary people, not otherworld creatures. The disciplined pursuit of this common sense observation helps us to reach conclusions about experts that might be surprising or counterintuitive.
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…
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.
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.
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.
The Neoclassical approach to analysing personal choice is compared with an approach contained in a Biblical Christian mode of analysis. This paper compares the…
The Neoclassical approach to analysing personal choice is compared with an approach contained in a Biblical Christian mode of analysis. This paper compares the Neoclassical and Christian positions via analysis of characteristics of the Neoclassical rational choice model. The main characteristic examined is a basic assumption of the rational choice model that human choice is explained as the optimisation of utility via rational self‐interest. The two positions are compared in terms of how they treat self‐interest and rationality, the degree to which basic assumptions about human behaviour are specified, the importance they attach to the realism of assumptions underlying their models, and the explanatory and predictive purposes for which the models are used. The conclusion of the comparison is that the Biblical Christian perspective encompasses the variables regarded as important in Neoclassical explanation, but presents them in the context of a more embracing worldview perspective than the Neoclassical. This Christian belief perspective is applicable to human behaviour in both “economic” and “non‐economic” domains.
Choice under risk has a large stochastic (unpredictable) component. This chapter examines five stochastic models for binary discrete choice under risk and how they combine…
Choice under risk has a large stochastic (unpredictable) component. This chapter examines five stochastic models for binary discrete choice under risk and how they combine with “structural” theories of choice under risk. Stochastic models are substantive theoretical hypotheses that are frequently testable in and of themselves, and also identifying restrictions for hypothesis tests, estimation and prediction. Econometric comparisons suggest that for the purpose of prediction (as opposed to explanation), choices of stochastic models may be far more consequential than choices of structures such as expected utility or rank-dependent utility.
The garbage can model showed that what appears to be irrational and unpredictable choices can be explained by processes that regulate attention allocation and the availability of choice alternatives. Because attention to alternatives fluctuates, the model generates context-dependent choices: evaluations of alternatives depend on the mix of other alternatives considered. I re-examine the mechanisms by which fluctuating attention can cause context-dependent choices. Using insights from behavioral decision theory I demonstrate how adding fluctuating attention to a well-known model of organizational decision making generates context-dependent choices of a kind that could not be explained by a maximizing process.
Economic choice theory is built on utilitarian foundations. The purpose of this paper is to explore whether a foundation of virtue ethics might be more consistent with…
Economic choice theory is built on utilitarian foundations. The purpose of this paper is to explore whether a foundation of virtue ethics might be more consistent with human nature.
The paper focuses on utilitarianism vs virtue ethics as foundations of economic choice theory.
Economic choice theory describes consumer choice in terms that are inconsistent with findings from recent research in behavioral economics, neuroeconomics, and psychology. The consumers' dynamic optimization problem, as outlined by traditional theory, is unsolvable in the sense that it contains too many unknowns. This means that the consumer must approach the problem in a different manner than is usually suggested by the literature. Moreover, new psychological theories of well‐being suggest that we can, to some extent, choose what we want to want and that true happiness is based on our character as much as it is based on our consumption of goods.
The idea that human choices may not be based on consistent preferences calls into question the policy suggestions of the literature on revealed preference and welfare economics. In particular, we cannot rely on past choices to draw inferences on people's preferences.
To maximize social welfare, society must value and promote the development of virtue and character.
The paper highlights some of the differences between utilitarian and the virtue ethics perspectives on choice.
The purpose of this paper is to show that empirical analysis of consumption of a good, using the same empirical and econometric model as it is done in standard applied…
The purpose of this paper is to show that empirical analysis of consumption of a good, using the same empirical and econometric model as it is done in standard applied demand analysis, may be based on the underlying behavioral model other than the rational choice.
Reference point approach originally developed by psychologists and later translated into reference price approach by business scholars is used to demonstrate this point. Empirically, a model of consumption of broilers in the USA is estimated using regression analysis and its results and implications are discussed.
The same empirical model can be used to represent more than one underlying model of consumer behavior.
This paper raises the question of which underlying behavioral theory is valid, and under what circumstances might that validity change. The importance of accounting for reference prices appears to be validated, but the fact that both theories lead to the same or similar empirical formulation does little to secure either theory as right or wrong.
Research in consumer behavior and demand generally assumes the existence of one superior theoretical behavioral model. This paper suggests that such claims are unfounded since standard current empirical modeling of consumer behavior accommodates more than one underlying theory.
That part of human behaviour which is not rigidly determined by external constraints can be considered as a sequence of more or less free choices. One can talk of a choice only if it is one of several alternatives, and of a free choice only in so far as it is not determined by conditions over which the individuals have no control. Moreover, we recognise an alternative only if it is actually elected by at least a fraction of a population. This leads to the concept of statistical freedom. Postulates are formulated which must be satisfied by any numerical measures of statistical freedom, and certain mathematical expressions are proposed which are shown to conform to these postulates. Statistical freedom has two fundamental features, which appear as factors in its numerical measure: diversity and independence. The measures of diversity and independence are derived in the first place front a certain model of society, but once they are obtained, the model is discarded, and the statistical coefficients are justified by their mathematical properties. Safeguards against arbitrary manipulation of statistical material are discussed, and the potential use of the new measures is illustrated by application to the problem of choice of profession.