Evaluating Alternative Operations Strategies to Improve Travel Time ...

SHRP 2 L11: Final Appendices
Comment #9:
My main comment concerns the travel time reliability valuation issues. Although the proposed
methodology for measuring the value of reliability using option values is innovative. The use of this
methodology for this issue is new. From a scientific point of view this is very interesting. But in my
opinion the research does not fully addresses the question whether the approach can be applied
for transportation phenomena. Therefore, this approach presents a risk. To ' prove’ that the
methodology will yield appropriate values for probabilities of travel times will require a lot of
empirical research and comparison with methodologies currently applied elsewhere in the
world (Norway, The Netherlands, UK, etc.). Without such work, it is very risky to incorporate the
methodology as the standard procedure to be applied.
Response #9:
The thrust of this comment is that it urges us to compare the Options Theoretic approach with
Stated and Revealed Preference approaches to ‘prove’ the appropriateness or validity of the results
obtains using the options theoretic approach. Comparing the approaches is a useful suggestion since
most folks working in this area are toiling away to develop unreliability valuations using the latter,
two empirical approaches.
The contrasts between the two approaches are the following;
1. The RP or SP approaches are probably impractical methods for widespread application of
reliability valuation. This is because they are not economical, requiring separate studies for each
application. Even putting aside my general skepticism about the SP techniques, even that approach
is relatively costly to implement and subject to the same statistical issues and biases that creep into
interview-based contingent valuation, conjoint and similar analyses.
2. The RP and SP approaches implicitly adopt utility function specifications that are certainly
debatable in their mathematical form (usually linear in its arguments or some non-linear
specification to introduce risk-aversion). Hence, they are no more agnostic than the Black-Scholes
approach which technically assumes risk-neutrality, but have been shown to be robust to the
assumption of risk-aversion.
3. The RP and SP analyses usually also postulate a somewhat specific characterization of the
context of unreliability–e.g., that it arises out of a particular manifestation of a scheduling-cost
problem, etc. The Options Theoretic approach is no more restrictive; it simply postulates that there
is a willingness to pay for insurance (hypothetically) that compensates drivers for not experiencing
below-average speeds that are, in turn, generated from draws from a log-normally distributed delay
process.
4. A major difference (which I see as an advantage of the Options Theoretic approach) is that the
value of the real option allows separation of the value-of-time issue from the "real" unreliability
issue. Since the existing travel models carry values of time internally for other purposes (mode
choice and traffic assignment), the RP and SP approaches (having confounded time valuation and
traffic variability), are harder to integrate into the modeling suite. In contrast, the options approach
allows unreliability to be introduced directly into traditional, volume-delay specifications used in
travel model platforms. Since its primary empirical input is speed-distributional information, it
imposes light additional burdens on the modeler. The required data on speed variations is plentiful,
easily calculated from loop-detector histories, and can be made idiosyncratic to individual network
links. For the same reason, the approach is friendlier in micro simulation model settings.
DETERMINING THE ECONOMIC BENEFITS OF IMPROVING TRAVEL-TIME RELIABILITY Page B-39