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The chapter outlines the principles underlying relative utility models, discusses the results of empirical applications and critically assesses the usefulness of this specification against commonly used random utility models and other context dependence models. It also discusses how relative utility can be viewed as a generalisation of context dependency.

In contrast to the conventional concept of random utility, relative utility assumes that decision-makers derive utility from their choices relative to some threshold(s) or reference points. Relative utility models thus systematically specify the utility against such thresholds or reference points.

Examples in the chapter show that relative utility model perform well in comparison to conventional utility-maximising models in some circumstances.

Examples of relative utility models are rare in transportation research. The chapter shows that several recent models can be viewed as special cases of relative utility models.

This chapter reviews models of decision-making and choice under conditions of certainty. It allows readers to position the contribution of the other chapters in this book in the historical development of the topic area.

Bounded rationality is defined in terms of a strategy to simplify the decision-making process. Based on this definition, different models are reviewed. These models have assumed that individuals simplify the decision-making process by considering a subset of attributes, and/or a subset of choice alternatives and/or by disregarding small differences between attribute differences.

A body of empirical evidence has accumulated showing that under some circumstances the principle of bounded rationality better explains observed choices than the principle of utility maximization. Differences in predictive performance with utility-maximizing models are however small.

The chapter provides a detailed account of the different models, based on the principle of bounded rationality, that have been suggested over the years in travel behaviour analysis. The potential relevance of these models is articulated, model specifications are discussed and a selection of empirical evidence is presented. Aspects of an agenda of future research are identified.

The last 20 years have seen a significant evolution in the literature on horizontal inequity (HI) and have generated two major and “rival” methodological strands, namely, classical HI and reranking. We propose in this paper a class of ethically flexible tools that integrate these two strands. This is achieved using a measure of inequality that merges the well-known Gini coefficient and Atkinson indices, and that allows a decomposition of the total redistributive effect of taxes and transfers into a vertical equity effect and a loss of redistribution due to either classical HI or reranking. An inequality-change approach and a money-metric cost-of-inequality approach are developed. The latter approach makes aggregate classical HI decomposable across groups. As in recent work, equals are identified through a non-parametric estimation of the joint density of gross and net incomes. An illustration using Canadian data from 1981 to 1994 shows a substantial, and increasing, robust erosion of redistribution attributable both to classical HI and to reranking, but does not reveal which of reranking or classical HI is more important since this requires a judgement that is fundamentally normative in nature.

Interest in car-sharing initiatives, as a tool for improving transport network efficiency in urban areas and on interurban links, has grown in recent years. They have often been proposed as a more cost effective alternative to other modal shift and congestion relief initiatives, such as public transport or highway improvement schemes; however, with little implementation in practice, practitioners have only limited evidence for assessing their likely impacts.

This study reports the findings of a Stated Preference (SP) study aimed at understanding the value that car drivers put on car sharing as opposed to single occupancy trips. Following an initial pilot period, 673 responses were received from a web-based survey conducted in June 2008 amongst a representative sample of car driving commuters in Scotland.

An important methodological aspect of this study was the need to account for differences in behaviour to identify those market segments with the greatest propensity to car share. To this end, we estimated a range of choice model forms and compared the ability of each to consistently identify individual behaviours. More specifically, this included a comparison of:

Standard market segmentation approaches based on multinomial logit with attribute coefficients estimated by reported characteristics (e.g. age, income, etc.);

A two-stage mixed logit approach involving the estimation of random parameters logit models followed by an examination of individual respondent's choices to arrive at estimates of their parameters, conditional on know distributions across the population (following Revelt & Train, 1999); and

A latent-class model involving the specification of C classes of respondent, each with their own coefficients, and assigning each individual a probability that they belongs to a given class based upon their observed choices, socioeconomic characteristics and their reported attitudes.

As hypothesised, there are significant variations in tastes and preferences across market segments, particularly for household car ownership, gender, age group, interest in car pooling, current journey time and sharing with a stranger (as opposed to family member/friend). Comparing the sensitivity of demand to a change from a single occupancy to a car-sharing trip, it can be seen that the latter imposes a ‘penalty’ equivalent to 29.85 IVT minutes using the mixed logit structure and 26.68 IVT minutes for the multinomial specification. Segmenting this latter value according to the number of cars owner per household results in ‘penalties’ equivalent to 46.51 and 26.42 IVT minutes for one and two plus car owning households respectively.

For Economics 271 and/or 272 (1921–1922)

In some contexts, this illiquidity of executive stock options is referred to as non-transferability. In others, the problem is cast in terms of the highly concentrated portfolios that managers hold, an implication of which is that managers could not trade the options to diversify. The notion of option liquidity usually conjures up images of trading pits at the Chicago Board Options Exchange or other exchanges. The existence of an active trading pit gives a powerful visual image of liquidity, but, as evidenced by the success of electronic options exchanges such as New York's International Securities Exchange and Frankfurt's EUREX, a trading pit is hardly a requirement for liquidity. The existence of a guaranteed market for standardized options as implied by options exchanges (whether pit-based or electronic) further gives a misleading appearance of high liquidity. There is also a very large market for customized over-the-counter options. It is a misconception to think that these options are not liquid when they are simply not standardized. If an investor can create a highly customized long position in an option, that investor should be able to create a highly customized short position in the same option at a later date before expiration. If both options are created through the same dealer, they will usually be treated as an offset, as they would if they were standardized options clearing through a clearinghouse. If the two transactions are not with the same dealer, they would both remain alive, but the market risks would offset. Only the credit risk, a factor we ignore in this paper, would remain. Hence, these seemingly illiquid options are, for all practical purposes, liquid.²

The paper published below was prepared by Taylor Ostrander for Frank Knight’s course, Economic Theory, Economics 301, during the Fall 1933 quarter.

This article makes a contribution to the conflict resolution literature by examining the effect of relative hedonic utility on budgetary conflict resolution. A lab experiment, using practicing CPAs as subjects, has been conducted to examine the effect. The literature in this field supports the implication that a person's happiness, which classical economists call hedonic utility, depends not only on the true state she (he) is in, but also on her (his) perceived state relative to the state of others. The biased perception makes a decision maker look at the state of the world more often when the state is bad than when the state is good, according to a prior research study. Although the true state of the world is split evenly between a good state and a bad one, a biased perception makes a decision maker compare herself more often to her neighboring individual when the state is bad. Accordingly, a decision maker who feels unhappy more often, while the magnitude of the pain may be the same, would exhibit a more distributive, zero-sum game type conflict resolution mode relative to another decision maker who feels unhappy less often and shows a more integrative conflict resolution mode. The test results confirmed the hypotheses. Statistically significant test results show that there are distinct effects of biased perception of individuals on budgetary conflict resolution.