To Pool or Not to Pool? The Effect of Loss Aversion on Queue Configurations

This study studies the impact of loss aversion on queue configurations in a doubled-ended queueing system such as taxi stations. We assume that there exist two types of demands/passengers, namely, the short-haul and long-haul, with long-haul demand offering a larger monetary reward for drivers. Loss-averse drivers decide to either join or balk based on their overall utility. We first consider the passenger-side system to be a loss system; that is, an arriving passenger balks if there is no taxi waiting for her. We derive the system performance of two queue configurations, that is, a pooled queue and two dedicated queues. By comparing the total passenger boarding rates, we find that the pooled queue is not always preferable. From the drivers’ perspective, the pooled queue generates a rather stable waiting time and hence mitigates their loss aversion in the waiting time dimension; nevertheless, it creates uncertainty in the reward dimension and thus brings about potential loss. We also compare the two configurations regarding the boarding rate of each type of passengers. We show that dedicated queues can achieve a Pareto improvement; that is, they can generate a higher boarding rate for each type of passenger when drivers are sufficiently loss averse in the reward dimension and not so in the waiting time dimension. Nevertheless, dedicated queues may decrease both passenger boarding rates. We then extend our setting by incorporating passengers’ joining/balking decisions and find that our managerial insights derived from the lost-demand system still hold.