Memory, expectation formation and scheduling choices

Abstract

Limited memory capacity, retrieval constraints and anchoring are central to expectation formation processes. We develop a model of adaptive expectations where individuals are able to store only a finite number of past experiences of a stochastic state variable. Retrieval of these experiences is probabilistic and subject to error. We apply the model to scheduling choices of commuters and demonstrate that memory constraints lead to sub-optimal choices. We analytically and numerically show how memory-based adaptive expectations may substantially increase commuters' willingness-to-pay for reductions in travel time variability, relative to the rational expectations outcome.

Uncovering the influence of commuters’ perception on the reliability ratio

“…This study aims to systematically compare estimated reliability ratios using self-reported (perceived or subjective) travel times from surveys and measured (actual or objective) travel times by GPS devices. Extending the literature on measurement errors (Brownstone and Valletta 1996;Fan, Guthrie, and Levinson 2016;Koster, Peer, and Dekker 2015;Levinson et al 2004;Li 2003;Parthasarathi, Levinson, and Hochmair 2013;Peer et al 2014;Varela, Börjesson, and Daly 2018; Varotto et al 2017;Vreeswijk et al 2014) we posit that these values are different and that perceived times will produce a higher reliability ratio than measured times.…”

Real consequences matter: Why hypothetical biases in the valuation of time persist even in controlled lab experiments

“…Carlsson, 2010;Fayyaz et al, 2018), as well as to the limited literature that shows how constraints in mental processes may lead to biases in valuations (e.g. Koster et al, 2015).…”