Latent Class Choice Models with Feedback through Consumer Surplus

Existing models of disaggregate decision-making assume that preferences, as indicated by taste parameters and choice sets, are characteristics of the decision-maker that are exogenous to the choice situation and stable over time. Though the assumption has allowed travel demand analysts to use these models to forecast changes in observable behavior in response to changes in the decision-making environment, the assumption has overlooked the influence of these changes on the preferences underlying observable behavior. As a consequence, the use of these models has been limited to forecasting horizons over which preferences can reasonably be assumed to be stable. In this paper we introduce Latent Class Choice Models (LCCMs) with feedback from the class-specific choice models to the class membership model through the construct of consumer surplus. Extant LCCMs formulate class membership as some function of the decision-maker’s characteristics but ignore the impact of alternative attributes on class membership. In the case of LCCMs with feedback, class membership is hypothesized to be a function not only of the characteristics of the decision-maker but also of the consumer surplus offered by each class, which in turn is a function of alternative attributes, taste parameters and choice sets. LCCMs with feedback allow for preference endogeneity. Application of the proposed framework to a case study on travel mode choice finds that a decision-maker’s value of time is sensitive to the level-of-service of the transportation system, and an increase in overal