Psychological economics, travel behavior, residential location choice, and sustainability: Possible new rationales for policy intervention

The sustainability policy agenda includes various land use, road pricing, and parking pricing policies that are intended to reduce the use and ownership of autos in order to lower carbon emissions, pollution and road congestion. Such well-established policy interventions are largely rooted in the microeconomic concepts of market failure and externalities. But recent research in psychological economics has identified a new kind of problem: people may make decisions that are not in their own self-interest, contrary to the underlying microeconomic assumption that people are “rational actors.” This research in progress explores whether and how imperfect decision making significantly affects the choice of where to live and how to travel, with effects on the sustainability of urban growth. The psychological economics literature suggests that residential movers may systematically over-predict future housing and commute satisfaction. They may also fail to consider less salient criteria such as social networks and time scarcity in preference to more easily visible criteria such as home size, school quality and privacy. This study will be among the first empirical analyses of these questions. We have conducted the first phase of a survey of UC Berkeley students, collecting data that will enable both cross-sectional and, after a second phase of data collection in the coming year, longitudinal analysis of hypotheses based on our application of the psychological economics literature to the realm of residential decision making and associated travel patterns. In this report we describe the relevant research literature, explain our design of the survey, report on our initial data collection with 123 respondents, and present initial cross-sectional evidence regarding our research questions. In future work on this project, enabled by additional funding from UCTC, we will survey our respondents again after they have moved, and broaden the research to discuss changes in happiness relative to before-and-after circumstances. We will then apply these lessons to discussing and proposing possible policy interventions, and to identifying needs for future research, including larger surveys with a more representative population.