Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/107866
Authors: 
Koster, Paul
Peer, Stefanie
Dekker, Thijs
Year of Publication: 
2014
Series/Report no.: 
Tinbergen Institute Discussion Paper 14-154/VIII
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 substantially increase commuters' willingness-to-pay for reductions in travel time variability, relative to the rational expectations outcome.
Subjects: 
Memory
Transience
Expectation formation
Adaptive expectations
Retrieval Accuracy
Scheduling
Value of Reliability
JEL: 
A12
D84
R41
Document Type: 
Working Paper

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