Dollars and Jens
Monday, April 19, 2010
signaling, herding, and the law of demand
When Victoria Perkovich sees a high toll on the illuminated Interstate 95 Express signs, she steers into the toll lanes.

``I think the traffic must be pretty bad,'' says Perkovich, a college student and frequent commuter. ``I'd rather pay $4 than spend two hours sitting in traffic.''

Her behavior helps explain the traffic growth on the I-95 Express Lanes -- and a classic misunderstanding of commuter psychology.

Traffic engineers assumed high tolls would deter drivers from using express lanes. Wrong.

Many drivers, like Perkovich, assume high tolls mean the toll-free lanes are clogged. Could be true, but the tolls rise mainly due to the number of drivers willing to pay a toll.
Hat tip to Jodi Beggs, who provides some commentary:
Could this work as an efficient congestion pricing system? Yes, if people were doing their own homework regarding traffic conditions and using that information to determine whether the toll was worth it. ... Does it work? No, since rather than checking the traffic reports, people are using the price itself as a signal of the traffic level. So what seems to be happening is something like the following: A few dudes who are really in a hurry choose the pay lane, just to be on the safe side. This raises the toll, and then other drivers see the toll increase and think “wait, what do these other guys know that I don’t?” and also choose the toll lane. This further increases the toll rate, ....
If the signal proves unreliable, this isn't an equilibrium; equilibrium can take a while to develop, but should eventually do so in a situation like this. Listening to radio traffic reports may currently be fairly profitable in Miami.

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