Extended prospect theory: Findings on choice behaviour from economics and the behavioural sciences and their relevance for travel behaviour

In Transport Sciences different implementations of Utility Theory are commonly used for the description and prediction of human choice behaviour. Almost 30 years ago Kahneman and Tversky proposed an alternative behavioural-economic model of choice behaviour called Prospect Theory. In contrast to Utility Theory they assumed that preference orders depend on the choice context. The most important differences between Extended Prospect Theory and Utility Theory are: preferences for one alternative over another are not stable but may change with the circumstances; people frame alternatives as changes compared to a reference state; they adapt that reference state almost immediately once a choice is made; and they attach a much higher value to a loss of, for example, ten minutes leisure time compared to an increase of the same size. This book demonstrates that in many occasions an Extended Prospect Theory explains the choice behaviour of people better than Utility Theory for the whole range of travel choice contexts. It also proposes a mathematical model based on Extended Prospect Theory that, compared to a similar Utility Theory-model, appeared to offer a better prediction of the responses of car owners in Singapore to the introduction and changes in the road pricing fares from 1975 to 2005