Skip to main content
SpringerLink
Log in

Choosing cities: a behavioural economic approach

  • Special Issue Paper
  • Published:
The Annals of Regional Science Aims and scope Submit manuscript

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 undermobility and consequent losses in individual utility and aggregate social welfare. We propose a behavioural 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 and their regional context 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.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

Notes

  1. See http://worldpopulationreview.com/world-cities/.

  2. A significant reason for a national focus is global tax competition, particularly with respect to repatriation of profits on intellectual property or other income earning assets that are globally mobile.

  3. Note that loss aversion can also induce migration when city choice is framed in terms not of the benefits of moving but the losses associated with staying.

References

  • Andersson ÅE, Andersson DE (2017) Time, space and capital. Edward Elgar, Cheltenham

    Book  Google Scholar 

  • Anttiroiko AV (2016) City as a platform: the rise of participatory innovation platforms in Finnish cities. Sustainability 8(9):922

    Article  Google Scholar 

  • Arkes HR, Blumer C (1985) The psychology of sunk cost. Organ Behav Hum Decis Process 35:124–140

    Article  Google Scholar 

  • Banczyk M, Potts J (2018) City as platform: toward a new economics of cities. In: SSRN

  • Batty M (2008) The size, scale, and shape of cities. Science 319(5864):769–771

    Article  Google Scholar 

  • Batty M (2013) The new science of cities. MIT Press, Cambridge

    Book  Google Scholar 

  • Bettencourt L, Lobo J, Helbing D, Kühnert C, West G (2007) Growth, innovation, scaling, and the pace of life in cities. Proc Natl Acad Sci 104(17):7301–7306

    Article  Google Scholar 

  • Bettencourt L, Lobo J, Strumsky D, West G (2010) Urban scaling and its deviations: revealing the structure of wealth, innovation and crime across cities. PLoS ONE 5:e13541

    Article  Google Scholar 

  • Bollier D (2016) The city as platform. The Aspen Institute. http://csreports.aspeninstitute.org/documents/CityAsPlatform.pdf. Accessed 9 Aug 2017

  • Borjas G (1993) The intergenerational mobility of immigrants. J Labor Econ 11:113–135

    Article  Google Scholar 

  • Braudel F (1992) The perspective of the world: civilization and capitalism 1500–1800, vol 3. University of California Press, San Francisco

    Google Scholar 

  • Brickman P, Coates D, Janoff-Bulman R (1978) Lottery winners and accident victims: is happiness relative? J Pers Soc Psychol 36(8):917–927

    Article  Google Scholar 

  • Earl PE (1986) Lifestyle economics. Harvester Wheatsheaf, Brighton

    Google Scholar 

  • Earl PE (1990) Economics and psychology: a survey. Econ J 100:718–755

    Article  Google Scholar 

  • Earl PE (2005) Economics and psychology in the twenty-first century. Camb J Econ 29(6):909–926

    Article  Google Scholar 

  • Earl PE, Potts J (2004) The market for preferences. Camb J Econ 28(4):619–633

    Article  Google Scholar 

  • Easterlin R (2003) Income and happiness: towards a unified theory. Econ J 111(473):465–484

    Article  Google Scholar 

  • Feser E (2003) What regions do rather than make: a proposed set of knowledge-based occupation clusters. Urban Stud 40(10):1937–1958

    Article  Google Scholar 

  • Florida R (2005) Cities and the creative class. Routledge, London

    Book  Google Scholar 

  • Florida R (2008) Who’s your city?. Basic Books, New York

    Google Scholar 

  • Florida R, Gulden T, Mellander C (2008) The rise of the mega-region. Camb J Reg Econ Soc 1(3):459–476

    Article  Google Scholar 

  • Fujita M, Thisse J (2013) Economics of agglomeration. Cambridge University Press, Cambridge

    Book  Google Scholar 

  • Geisinger A (2004) A group identity theory of social norms and its implications. Tulsa Law Rev 78:605–664

    Google Scholar 

  • Gigerenzer G, Goldstein D (1996) Reasoning the fast and frugal way: models of bounded rationality. Psychol Rev 103(4):650–665

    Article  Google Scholar 

  • Glaeser E (2000) The new economics of urban and regional growth. Oxf Handb Econ Geogr 1:83–98

    Google Scholar 

  • Glaeser E (2007) The economic approach to cities. NBER working paper. http://www.nber.org/papers/w13696.pdf. Accessed 10 Dec 2017

  • Glaeser E (2012) The triumph of the city. Penguin, New York

    Google Scholar 

  • Glaeser E, Scheinkman J, Shleifer A (1995) Economic growth in a cross-section of cities. J Monet Econ 36:117–143

    Article  Google Scholar 

  • Goldenfein J, Potts J, Rennie E (2018) Blockchains and the cryptocity. Inf Technol 59(6):285–293

    Google Scholar 

  • Greenwood M, Hunt G, Rickman D, Treyz G (1991) Migration, regional equilibrium, and the estimation of compensating differentials. Am Econ Rev 81:1382–1390

    Google Scholar 

  • Hall P (1998) Cities in civilization. Weidenfeld and Nicolson, London

    Google Scholar 

  • Hartley J, Potts J, MacDonald T (2012) Creative city index. Cult Sci 5(1):110

    Google Scholar 

  • Hausmann R, Hwang J, Rodrik D (2006) What you export matters. J Econ Growth 12(1):1–25

    Article  Google Scholar 

  • Jacobs J (1969) The economy of cities. Penguin, London

    Google Scholar 

  • Kahneman D, Thaler RH (2006) Utility maximization and experienced utility. J Econ Perspect 20(1):221–234

    Article  Google Scholar 

  • Kahneman D, Tversky A (1979) Prospect theory: an analysis of decision under risk. Econometrica 47(2):263–291

    Article  Google Scholar 

  • Kahneman D, Tversky A (1982) The psychology of preference. Sci Am 246:160–173

    Article  Google Scholar 

  • Kotkin J (2006) The city: a global history. Modern Library, New York

    Google Scholar 

  • Kremer M (1993) The O-ring theory of economic development. Quart J Econ 108(3):551–575

    Article  Google Scholar 

  • Krugman P (1991) Increasing returns and economic geography. J Polit Econ 99:483–499

    Article  Google Scholar 

  • Lubotsky D (2000) Chutes or ladders? a longitudinal analysis of immigrant earnings. Princeton University industrial relations section working paper no. 445, August

  • Lucas R (2004) Life earnings and rural-urban migration. J Polit Econ 112(S1):29–59

    Article  Google Scholar 

  • Mortensen D, Pissarides C (1994) Job creation and job destruction in the theory of unemployment. Rev Econ Stud 61(3):397–415

    Article  Google Scholar 

  • Mueser P, Graves P (1995) Examining the role of economic opportunity and amenities in explaining population redistribution. J Urban Econ 37:176–200

    Article  Google Scholar 

  • North D (1990) Institutions, institutional change, and economic performance. Cambridge University Press, Cambridge

    Book  Google Scholar 

  • Phelps E (2013) Mass flourishing. Princeton University Press, Princeton

    Book  Google Scholar 

  • Pirenne H (2014/1925) Medieval cities: their origin and the revival of trade. Princeton University Press, Princeton (Princeton Classics)

  • Potts J (2003) Toward an evolutionary theory of homo economics: the concept of universal nomadism. In: Laurent J (ed) Evolutionary economics and human nature. Edward Elgar, Worcester, pp 195–216

    Google Scholar 

  • Rappaport J (2004) Why are population flows so persistent? J Urban Econ 56:554–580

    Article  Google Scholar 

  • Ren P (2011) Lifetime mobility in the United States. American Community Survey Briefs, U.S. Department of Commerce, Economics and Statistics Administration, U.S. Census Bureau, November 2011

  • Rochet J, Tirole J (2003) Platform competition in two-sided markets. J Eur Econ Assoc 1(4):990–1029

    Article  Google Scholar 

  • Rosen S (1986) The theory of equalizing differences. Handb Labor Econ 1:641–692

    Article  Google Scholar 

  • Samuelson W, Zeckhauser R (1988) Status quo bias in decision making. J Risk Uncertain 1:7–59

    Article  Google Scholar 

  • Sassen S (1991) The global city. Princeton University Press, Princeton

    Google Scholar 

  • Schelling T (1960) The strategy of conflict. Harvard University Press, Cambridge

    Google Scholar 

  • Scott A (2002) Global city-regions. Oxford University Press, Oxford

    Google Scholar 

  • Simon H (1955) A behavioral model of rational choice. Quart J Econ 69:99–118

    Article  Google Scholar 

  • Stevenson B, Wolfers J (2008) Economic growth and subjective well-being: reassessing the Easterlin paradox. No. w14282. National Bureau of Economic Research, 2008

  • Sunstein C, Thaler R (2008) Nudge. Penguin, New York

    Google Scholar 

  • Thaler R (1980) Toward a positive theory of consumer choice. J Econ Behav Organ 1:39–60

    Article  Google Scholar 

  • Thaler R (1981) Some empirical evidence on dynamic inconsistency. Econ Lett 8(3):201–207

    Article  Google Scholar 

  • Tversky A (1972) Elimination by aspects: a theory of choice. Psychol Rev 79(4):281–299

    Article  Google Scholar 

  • Tversky A, Kahneman D (1973a) Availability: a heuristic for judging frequency and probability. Cogn Psychol 5:207–232

    Article  Google Scholar 

  • Tversky A, Kahneman D (1973b) Judgment under uncertainty: heuristics and biases. Science 185:1124–1131

    Article  Google Scholar 

  • Von Thuenen J (2009/1826) The Isolated state. Palgrave MacMillan, London

  • Williamson O (1985) The economic institutions of capitalism. The Free Press, New York

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Columbia University, New York City, USA

    Marek Banczyk

  2. Cityglobe, New York City, USA

    Marek Banczyk

  3. School of Economics, Finance and Marketing, RMIT University, Melbourne, VIC, Australia

    Joanne Laban & Jason Potts

Authors
  1. Marek Banczyk
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Joanne Laban
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Jason Potts
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Jason Potts.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Banczyk, M., Laban, J. & Potts, J. Choosing cities: a behavioural economic approach. Ann Reg Sci 61, 463–477 (2018). https://doi.org/10.1007/s00168-018-0872-7

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s00168-018-0872-7

JEL Classification

Search

Navigation