Bounded rationality and driving in holiday traffic

On Friday afternoon, I drove from Hamilton to Tauranga. Friday was the Matariki public holiday, and traffic was heavy, especially on the Waikato Expressway. As anyone who has tried to drive southbound along the Expressway at the start of a holiday weekend has discovered, the end of the Expressway is a bottleneck that backs traffic up quite significantly.

So, as we got closer to Cambridge (and the last off-ramp before the end of the Expressway), I asked my daughter to check Google Maps. Sure enough, there was twenty minutes of congestion at the end of the Expressway. But, she informed me, there was only six minutes of congestion if we exited the Expressway and drove through Cambridge instead. So, that's what we did, and rejoined the highway south of Cambridge and in front of the majority of the congestion.

Why am I writing about my driving experience on an economics blog? Because it illustrates something that I discussed with my ECONS102 class this week - bounded rationality. A purely rational driver would have complete knowledge about their route options and times, and would choose the fastest route (through Cambridge, as I did). However, the more drivers who choose the fastest route, the slower and more congested that route would get, until eventually it was no quicker than the slower route. In the case of the Expressway on Friday, given that there was fourteen minutes difference between the two options, it is clear that many drivers were not acting in a purely rational manner.

Instead, they may be boundedly rational. Bounded rationality, which was introduced to economics by 1978 Nobel Prize winner Herbert Simon in 1955, suggests that the rationality of decision makers is limited by the information that they have access to. In the case of drivers, they may act on the information that they have before they leave home (when congestion may not be so bad), or they may base their decision on the 'usual' level of congestion (which is limited), in which case they believe that the Expressway is the faster option. This is also related to the illusion of knowledge - we think that we know more than we actually do. Drivers think that they know the Expressway is faster than driving through Cambridge, so they don't bother to check. The illusion of knowledge is one of a number of heuristics and biases that affect decision-makers - we can refer to those decision-makers as quasi-rational.

Either way, the end result is that the purely rational drivers (like me! [*]) got to enjoy a 14-minute faster journey than the boundedly rational and quasi-rational drivers, who stayed on the Expressway.

*****

[*] In no way can I claim a general tendency to purely rational behaviour. In fact, in this case I was only able to act in a purely rational way because I had a passenger with immediate access to Google Maps!