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Memory, Expectation Formation and Scheduling Choices

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

No 14-154/VIII, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: This discussion paper led to a publication in 'Economics of Transportation'

. 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 substantially increase commuters' willingness-to-pay for reductions in travel time variability, relative to the rational expectations outcome.

Keywords: Memory; Transience; Expectation formation; Adaptive expectations; Retrieval Accuracy; Scheduling; Value of Reliability (search for similar items in EconPapers)
JEL-codes: A12 D84 R41 (search for similar items in EconPapers)
Date: 2014-12-16
New Economics Papers: this item is included in nep-tre
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Journal Article: Memory, expectation formation and scheduling choices (2015) Downloads
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