Elements of the Choice Decision Process
# Introduction
We observe individuals (or decision makers) making choices in a wide variety of decision contexts. However, we generally do not have information about the process individuals use to arrive at their observed choice. A proposed framework for the choice process is that an individual first determines the available alternatives; next, evaluates the attributes of each alternative relevant to the choice under consideration; and then, uses a decision rule to select an alternative from among the available alternatives (Ben-Akiva and Lerman, 1985, Chapter 3). Some individuals might select a particular alternative without going through the structured process presented above. For example, an individual might decide to buy a car of the same make and model as a friend because the friend is happy with the car or is a car expert. Or an individual might purchase the same brand of ice cream out of habit. However, even in these cases, one can view the behavior within the framework of a structured decision process by assuming that the individual generates only one alternative for consideration (which is also the one chosen).
In the subsequent sections, we discuss four elements associated with the choice process; the decision maker, the alternatives, the attributes of alternatives and the decision rule.
# The Decision Maker
The decision maker, or agent, in each choice situation is the individual, group or institution which has the responsibility to make the decision at hand. The decision maker will depend on the specific choice situation. For example, the decision maker will be the individual in college choice, career choice, travel mode choice, etc.; the household in residential location choice, vacation destination choice, number of cars owned, etc.; the firm in office or warehouse location, carrier choice, employee hiring, etc. or the State (in the selection of roadway alignments). A common characteristic in the study of choice is that different decision makers face different choice situations and can have different tastes (that is, they value attributes differently). For example, in travel mode choice modeling, two individuals with different income levels and different residential locations are likely to have different sets of modes to choose from and may place different importance weights on travel time, travel cost and other attributes. These differences among decision makers should be explicitly considered in choice modeling; consequently, it is important to develop choice models at the level of the decision maker and to include variables which represent differences among the decision makers.
# The Alternatives
Individuals make a choice from a set of alternatives available to them. The set of available alternatives may be constrained by the environment. For example, high speed rail between two cities is an alternative only if the two cities are connected by high speed rail. The choice set determined by the environment is referred to as the universal choice set. However, even if an alternative is present in the universal choice set, it may not be feasible for a particular individual. Feasibility of an alternative for an individual in the context of travel mode choice may be determined by legal regulations (a person cannot drive alone until the age of 16), economic constraints (limousine service is not feasible for some people) or characteristics of the individual (no car available or a handicap that prevents one from driving). The subset of the universal choice set that is feasible for an individual is defined as the feasible choice set for that individual. Finally, not all alternatives in the feasible choice set may be considered by an individual in her/his choice process. For example, transit might be a feasible travel mode for an individual's work trip, but the individual might not be aware of the availability or schedule of the transit service. The subset of the feasible choice set that an individual actually considers is referred to as the consideration choice set. This is the choice set which should be considered when modeling choice decisions.
The choice set may also be determined by the decision context of the individual or the focus of the policy makers supporting the study. For example, a study of university choice may focus on choice of school type (private vs. public, small vs. large, urban vs. suburban or rural location, etc.), if the perspective is national, or a choice of specific schools, if the perspective is regional.
# Attributes of Alternatives
The alternatives in a choice process are characterized by a set of attribute values. Following Lancaster (1971), one can postulate that the attractiveness of an alternative is determined by the value of its attributes. The measure of uncertainty about an attribute can also be included as part of the attribute vector in addition to the attribute itself. For example, if travel time by transit is not fixed, the expected value of transit travel time and a measure of uncertainty of the transit travel time can both be included as attributes of transit.
The attributes of alternatives may be generic (that is, they apply to all alternatives equally) or alternative-specific (they apply to one or a subset of alternatives). In the travel mode choice context, in-vehicle-time is usually considered to be specific to all motorized modes because it is relevant to motorized alternatives. However, if travel time by bus is considered to be very onerous due to over-crowding, bus in-vehicle-time may be defined as a distinct variable with a distinct parameter; differences between this parameter and the in-vehicle-time parameter for other motorized modes will measure the degree to which bus time is considered onerous to the traveler relative to other in-vehicle time. Other times, such as wait time at a transit stop or transfer time at a transit transfer point are relevant only to the transit modes, not for the non-transit modes. It is also common to consider the travel times for non-motorized modes (bike and walk) as specific to only these alternatives.
An important reason for developing discrete choice models is to evaluate the effect of policy actions. To provide this capability, it is important to identify and include attributes whose values may be changed through pro-active policy decisions. In a travel mode choice context, these variables include measures of service (travel time, frequency, reliability of service, etc.) and travel cost.
# The Decision Rule
An individual invokes a decision rule (i.e., a mechanism to process information and evaluate alternatives) to select an alternative from a choice set with two or more alternatives. This decision rule may include random choice, variety seeking, or other processes which we refer to as being irrational. As indicated earlier, some individuals might use other decision rules such as "follow the leader" or habit in choosing alternatives which may also be considered to be irrational. However, even in this case, rational discrete choice models may be effective if the decision maker who adopts habitual behavior previously evaluated different alternatives and selected the best one for him/her and there have been no intervening changes in her/his alternatives and preferences. However, in the case of follow-the-leader behavior, the decision maker is considered to be rational if the “leader” is believed to share a similar value system. An individual is said to use a rational decision process if the process satisfies two fundamental constructs: consistency and transitivity. Consistency implies the same choice selection in repeated choices under identical circumstances. Transitivity implies an unique ordering of alternatives on a preference scale. Therefore, if alternative A is preferred to alternative B and alternative B is preferred to alternative C, then alternative A is preferred to alternative C.
A number of possible rules fall under the purview of rational decision processes (Ben-Akiva and Lerman, 1985; Chapter 3). In this course, the focus will be on one such decision rule referred to as utility maximization. The utility maximization rule is based on two fundamental concepts. The first is that the attribute vector characterizing each alternative can be reduced to a scalar utility value for that alternative. This concept implies a compensatory decision process; that is, it presumes that individuals make "trade-offs" among the attributes characterizing alternatives in determining their choice. Thus, an individual may choose a costlier travel mode if the travel time reduction offered by that mode compensates for the increased cost. The second concept is that the individual selects the alternative with the highest utility value.
The focus on utility maximization in this course is based on its strong theoretical background, extensive use in the development of human decision making concepts, and amenability to statistical testing of the effects of attributes on choice. The utility maximization rule is also robust; that is, it provides a good description of the choice behavior even in cases where individuals use somewhat different decision rules.
In the next section, we discuss the concepts and underlying principles of utility based choice theory in more detail.
Continue to Utility-Based Choice Theory
This page is part of the Logit Manual. See here for more information.