Wednesday, 14 October 2015

Why transport chaos can be a good thing

People are creatures of habit. In behavioural economics, we refer to status quo bias. As an example, think about the route you take to get to work or school each day. You probably haven't rigorously evaluated all of the possible alternative routes - you probably tried a few different ones out, found one that appeared to work well, and have stuck to it ever since.

There's a good reason why you don't continue to improve your route selection. Herbert Simon (1978 Nobel Prize winner) suggested that humans do not optimise, but instead satisfice. That is, we look around at some of the options (not necessarily all of the options) and find one that is 'good enough'. A more rigorous interpretation of this is provided by search theory. Search theory (which among other things Peter Diamond, Dale Mortensen, and Christopher Pissarides won the 2010 Nobel Prize for) says that it is costly for us to search for things (e.g. buyers searching for sellers, commuters searching for the optimal route, etc.). We will continue to search for a better option only up to the point where the marginal benefit of continuing the search are equal to the marginal costs of searching. The marginal benefit is the benefit gained from finder a slightly better option. In the case of the commuter, it is the time saved from finding a faster route to work or school. Under search theory, the 'optimal' route is the one where any additional searching would make us worse off (marginal cost > marginal benefit).

If we were optimisers, we would (eventually through trial and error) find the fastest route to work or school, and there would be no gains from taking an alternative route. However, if we are satisficers or if we conform to search theory, then if our current preferred route is not available to us, we might experiment with other routes and find a new one that is even faster.

Which brings me to the point of this post. A recent paper by Shaun Larcom (University of Cambridge), Ferdinand Rauch (University of Oxford), and Tim Willems (University of Oxford) looks at exactly this question. The paper is summarised in a non-technical way here. Essentially they looked at public transport card data before and after the London tube strike in February 2014, and compared commuters who were affected by the strike with those who weren't.

They find:
...that those who were forced to explore alternative routes during the strike (‘the treated’) were significantly less likely to return to their pre-strike modal commute in the post-strike period, relative to the non-treated control group...
In terms of magnitude, the fraction of post-strike switchers is about five percentage points higher among the treated.
In other words, it's evidence that London commuters are not optimisers. So, are they satisficers, or is this search theory at work? The authors investigate:
Using conservative numbers for the estimated time saving and its monetary equivalent, we calculate that if commuters were adhering to the optimal search strategy, the cost of trying the most attractive untried alternative would have to be greater than £380. Given this implausibly large number, it seems that commuters in our dataset were experimenting less than what is described by the standard rational model. Instead, agents seem to satisfice in a way that is not straightforward to rationalise.
So, it appears that not only are London commuters not optimisers, they aren't optimising under search theory either.

In related news, Thomas Lumley over at Stats Chat pointed me to this Transport Blog post about the disruption to the Hutt Valley rail line in June 2013. The disruption allowed the Ministry of Transport to estimate the benefit of the rail line to commuters, at $330 million per year (in saved travel costs). Lumley quite rightly points out that if the rail line didn't exist, many people would live somewhere else instead (it might be better to live in downtown Wellington or in Porirua or Petone rather than commute from the Hutt Valley each day).

Note that in the Wellington case, that the commuters probably didn't continue driving into Wellington when the rail line was reopened. There was little to be gained from the alternative route (hence the large cost savings of the rail line).

[HT: Marginal Revolution for the former study]

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