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Memory, expectation formation and scheduling choices

Paul Koster (), Stefanie Peer () and Thijs Dekker ()

Economics of Transportation, 2015, vol. 4, issue 4, 256-265

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.

Keywords: Memory; Transience; Expectation formation; Retrieval accuracy; Scheduling; Value of reliability (search for similar items in EconPapers)
Date: 2015
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Working Paper: Memory, Expectation Formation and Scheduling Choices (2014) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecotra:v:4:y:2015:i:4:p:256-265

DOI: 10.1016/j.ecotra.2015.09.001

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