Richard Thaler, one of the founders of modern behavioral economics, just won the 2017 Nobel Memorial Prize in Economic Sciences. His research holds some interesting lessons for transportation planners trying to reduce traffic. Specifically, it highlights why people may be averse to policies that charge drivers more for peak-hour driving.
The goal of “congestion pricing” is to alleviate traffic and encourage more transit usage, walking and biking. As I described last week, it tolls drivers during peak times for entering city centers. It’s an important strategy for cities like Los Angeles that need to reduce traffic to increase mobility, while funding alternatives to driving with the revenue.
Yet Thaler’s research is a cautionary tale for congestion pricing. He describes the “endowment effect,” which is closely related to loss aversion. Basically, people try to avoid losses in their well-being, money, and so forth, much more (at least rationally so) than they try to pursue gains. As Vox.com explained:
The endowment effect helps explain why businesses don’t engage in rational behavior if it’s likely to enrage their customers. Take, for instance, concert venues that know their events are likely to sell out quickly, and yet do not jack up ticket prices to hundreds or thousands of dollars to control the demand. Because jacking up the price would entail taking away something people are used to — reasonable ticket prices — it prompts a strong feeling of repulsion and injustice, which can lead to consumers turning on businesses and hurting them more than raising prices would help.
How does this apply to congestion pricing? Simply put, if drivers are used to driving somewhere for free, and now they’re being charged, the endowment effect indicates that many of them are going to be upset (potentially irrationally so) and react against the policy makers who are now charging them.
So what can be done to counter it? Well, first of all, policy makers can ensure that drivers have options to avoid the charges, such as the ability to drive off-peak to avoid getting charged as well as having access to easy transit, walking or biking alternatives. Second, policy makers can present the pricing arrangement as a temporary pilot, in order to give drivers the opportunity to see the “gains” from such an arrangement through decreased traffic and travel times.
Either way, congestion pricing may prove to be a tough sell in Los Angeles, albeit a needed one.
Los Angeles residents have been debating a recent proposal to implement congestion pricing around the region’s most congested area, as London, Stockholm and other cities have successfully implemented.
The idea is straightforward: charge drivers to enter the congested area during peak commute times. The tolls will discourage extraneous trips and encourage people to drive during off-peak times when they can. Traffic then falls within the tolled area. Meanwhile, the money raised can support transit investments there.
Larry Mantle’s AirTalk program on KPCC recently explored the proposal in a segment with UCLA professor Mike Manville and journalist Felix Salmon. Manville has conducted important research demonstrating that congestion pricing doesn’t necessarily hurt poor people disproportionately, as critics of the policy often allege.
Manville made a strong case for congestion pricing, but he got tripped up by a caller and Mantle when he argued that right now drivers use the roads for free. They pointed out that gas taxes and other fees help pay for roads, so they’re already paying for them. Manville instead argued that nobody pays for using the space on the road, which is a nuanced point.
The problem, politically speaking, is that people are going to recoil being charged for using something that 1) they previously used for free and 2) they feel they already pay for through other fees and taxes. The policy proposal will be vulnerable as a result, unless backers can describe how the additional fee or toll will give them a specific benefit. In this case, the benefit is reduced congestion.
Perhaps a better framing question would be: how much would you pay per car trip to avoid being stuck in traffic?