Volume 35 - Article 36 | Pages 1079–1100  

Loss aversion and duration of residence

By Philip S. Morrison, William A.V. Clark

Abstract

Background: Studies of internal migration ask who moves, why they move, and what are the consequences - to themselves, their origin, and their destination. By contrast, studies of those who stay for very long durations are less common, despite the fact that most people move relatively infrequently.

Objective: We argue that staying is the dominant, preferred state and that moving is simply an adjustment toward a desired state of stability (or equilibrium). The core of our argument, already recognized in the literature, is that migration is risky. However, we extend the argument to loss aversion as developed within prospect theory. Prospect theory posits that existing possessions, including the dwelling and existing commodities, are attributed a value well beyond their purchase price and that this extends the average period of staying among the loss-averse.

Methods: Applying prospect theory has several challenges, including measurement of the reference point and potential degrees of gain and loss households face in deciding to change residence, as well as their own degree of loss aversion. The growing number of large panel sets should make it possible to estimate the degree to which endowment effects are likely to extend durations of residence as predicted by prospect theory.

Conclusions: Rational expectations models of mobility focus on the changes in the level of consumption of residential services. By contrast, prospect theory focuses on potential gains and losses relative to the existing dwelling - the reference point. As we confront increasing durations of residence in contemporary society, an application of prospect theory is likely to yield important advantages over existing models of mobility and staying.

Author's Affiliation

• Philip S. Morrison - Victoria University of Wellington, New Zealand EMAIL
• William A.V. Clark - University of California, Los Angeles, United States of America EMAIL

Other articles by the same author/authors in Demographic Research

Transitions to partnership and parenthood: Is China still traditional?
Volume 43 - Article 6

Introduction to the special collection on life course decisions of families in China
Volume 43 - Article 5

Do women delay family formation in expensive housing markets?
Volume 27 - Article 1

Family migration and mobility sequences in the United States: Spatial mobility in the context of the life course
Volume 17 - Article 20

A comparative analysis of leaving home in the United States, the Netherlands and West Germany
Volume 7 - Article 17

Most recent similar articles in Demographic Research

The pitfalls and benefits of using administrative data for internal migration research: An evaluation of Australia’s Person Level Integrated Data Asset (PLIDA)
Volume 51 - Article 22    | Keywords: administrative data, Australia, internal migration

Migrating to a new country in late life: A review of the literature on international retirement migration
Volume 48 - Article 9    | Keywords: aging, internal migration, retirement, transnationalism

Segmented assimilation and mobility among men in the early 20th century
Volume 48 - Article 5    | Keywords: 20th-century immigration, classical assimilation, European immigration, mobility, school enrollment, segmented assimilation

Educational selectivity of native and foreign-born internal migrants in Europe
Volume 47 - Article 34    | Keywords: educational selectivity, Europe, European Union Labour Force Survey, global cities, internal migration, native and foreign-born population

Internal migration and the de-standardization of the life course: A sequence analysis of reasons for migrating
Volume 46 - Article 12    | Keywords: Australia, Household Income and Labour Dynamics in Australia (HILDA), internal migration, life course, sequence analysis