A common finding in stated preference studies that measure the value of travel time(VTT), is that the measured per-minute VTT increases with the size of the time change considered, in conflict with standard neoclassical theory. The current paper tests prospect theory as a possible explanation: More specifically, whether the phenomenon is generated by preferences being reference-dependent and exhibiting diminishing sensitivity for gains and losses, with a stronger degree of diminishing sensitivity for money than for travel time.

We use stated preference data with trade-offs between travel time and money that provide identification of the degrees of diminishing sensitivity for time and money gains and losses, thus enabling us to test and potentially falsify the prospect theory explanation. We apply a discrete choice model, in which choice depends on a reference-free value of travel time and reference-dependent value functions for time and money, allowing for loss aversion and different degrees of diminishing sensitivity for gains and losses. We use semiparametric local logit estimates of the equi-probability curves in the data to test the model’s appropriateness, and estimate its parameters using a mixed logit approach. Our results support the prospect theory explanation.