Why do they stay? Loss aversion and Duration of Residence

PWP-CCPR-2015-006

Abstract

Migration and labor mobility studies are dominated, as their names suggest, by theories and empirical accounts of movers. Studies of internal migration for example ask who moves, why they move and with what consequences - to themselves, their origin and destination. By contrast stayers are not as often the subject of enquiry despite the fact that most people move relatively infrequently. The alternative question, which we explore in this working paper, is why people spend most of their working lives in one place.

We follow a line of argument that privileges the view that staying is the dominant, preferred state and that moving is simply an adjustment towards a desired state of stability (or equilibrium). Our argument is based around the idea, already recognized in the literature, that migration is risky. However we extend the argument to the theoretically more interesting idea of loss aversion as developed within prospect theory. According to prospect theory existing possessions including the existing community are attributed a value well beyond their purchase price and that this extends the average period of staying among the loss averse.

We outline an empirical strategy which uses survival models to test the role played by an individual’s perceived level of risk. In the process we control for a range of demographic and socio-economic characteristics as well as life stage events. We propose applying the Cox proportional hazards model in order to show how the occupancy durations of selected categories of people are differentially affected by their personal level of risk adversity. We distinguish, in particular, between the effects of events (like divorce, bearing a child, getting married) on extending or reducing the stay, for respondents with different prior levels of loss aversion.