Prospect theory and the decision to move or stay Article Swipe
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· 2017
· Open Access
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· DOI: https://doi.org/10.1073/pnas.1708505114
· OA: W2746846398
Significance We use prospect theory and the endowment effect to provide a theoretical basis for an integrated approach to residential moving and residential staying. We link measures of risk aversion and the endowment effect to explain the tradeoff between moving and staying. We test Kahneman and Tervsky’s observation that endowment effects are especially likely in goods that are not regularly traded, e.g., houses. Their use value creates the endowment effect, which works in favor of the locational status quo, increasing the probability of staying. We analyze survey data to confirm that a general self-assessed risk aversion is important in decisions to migrate or stay, and the endowment effect, measured as tenure and duration, is a substantial factor in residential decision-making.
