Choosing Cities: A Behavioral Economic Approach

Abstract

How do people and firms choose to relocate to new cities? We argue that this difficult yet consequential choice is often poorly made, or not made at all, resulting in under-mobility and consequent losses in individual utility and aggregate social welfare. We propose a behavioral economic theory of why this happens and the predictable directions in which failure occurs in terms of characteristic biases and heuristics in city choice (including status quo bias, loss aversion, endowment effect, availability heuristics, present bias, social norms, anchoring, elimination heuristics, sunk cost effects, and regret aversion). We examine how cities might mitigate this problem by improving information as inputs into choice and by redesigning the choice architecture to embed effective choice heuristics into city search and match databases.

Keywords: behavioural economics, cities, nudging

JEL Classification: D10, R10