Prospect theory and the decision to move or stay

Migration has always involved stress and risk. More risk-averse households are less likely to move, while less risk-averse households will seek out opportunities and migrate. We investigate how the theoretical contributions of prospect theory, and specifically the endowment effect, can provide new u...

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Bibliographic Details
Published in:Proceedings of the National Academy of Sciences - PNAS 2017-09, Vol.114 (36), p.E7432-E7440
Main Authors: Clark, William A. V., Lisowski, William
Format: Article
Language:English
Subjects:
Aversion
Decision Making
Decision Theory
Demographics
Emigration and Immigration
Family Characteristics
Female
Households
Housing
Human Migration
Humans
Male
Migration
Models, Economic
Models, Theoretical
PNAS Plus
Risk aversion
Risk-Taking
Social Sciences
Studies
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Summary:Migration has always involved stress and risk. More risk-averse households are less likely to move, while less risk-averse households will seek out opportunities and migrate. We investigate how the theoretical contributions of prospect theory, and specifically the endowment effect, can provide new understanding about decisions whether to migrate or not. We test the hypothesis that risk aversion extends the length of stay in the dwelling and, by extension, in the local labor and housing markets. How long people remain in place is a function, we hypothesize, of their independently self-assessed propensity to take risks, after controlling for a range of demographic and socioeconomic characteristics. We use the theoretical insights of prospect theory and the endowment effect (the notion of the “use value” differing from the “exchange value”) to explain the likelihood of staying after controlling for life-course events. The results confirm the explanatory power of self-assessed risk in the decision to migrate or stay and, equally important, confirm the role of the endowment effect.
ISSN:0027-8424
1091-6490
DOI:10.1073/pnas.1708505114