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A Decision‐Making and Search

Model For Intraurban Migration

Article in Geographical Analysis · September 2010

Impact Factor: 1.05 · DOI: 10.1111/j.1538-4632.1979.tb00669.x

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 Terence R. Smith, W. A. V. Clark
James 0.Huff, and Perry Shupiro*

A Decision-Making and Search Model

For Intraurban Migration

Most of the research on the intmurban migration attempting to develop

models of the mobility process has presented intuitively appealing statements
about the residential ded..sion process, but shpped short of a f m l development
of these concepts. I f it is to be possible to predict the mobility pattern within the
city, both the search and selection process must be m e clearly specified. In this
paper, a preliminary theoretical model containing decision rules similar to those
found in optimal search models is deueloped. The model explicitly incorporates
the spatial and temporal aspects of residential choice and has the potential to
predict the probability that a prospective migrant will search for a new residence
in a given area of the city, the time when the search process will come to a
conclusion and, by implication, the expected location of the new residence. The
preliminay results from the model suggest a major elaboration of the spatial and
temporal aspects of residential choice under conditions of uncertuinty in terms
of a set of empirically measurable determinants, relating to a household’s
preferences, beliefs, and degree of risk aversion.

1. INTRODUCTION
The literature on intraurban migration has been expanding rapidly (see [37]
for a recent bibliography). Although the literature is substantial, the actual
decision-making aspects of mobility and the spatial implications of those deci-
sions are less well specified than discussions of the reasons for the move.

*The research for this paper was parthlly supported by National Science Foundation Grant
SOC7727362. The authors particularly wish to thank the anonymous referee. Answering the
questions he raised gave us valuable new insights into OUT continuing research.

Terence R. Smith is assistant professor of geography, University of Califmiu, Santa

Barbara. W. A. V. Clark is professor of geography and James 0. Huffis assistant
professor of geography, University of Califmiu, Los Angeles. Perry Shapiro is associate
professor of economics, university of Calijimiu, Santa Barbara.
0016-7363/79/0179-01$00.50/0 0 1979 Ohio State University Press
GEOGRAPHICAL ANALYSIS,
vol. 11, no. 1 uanuary 1979)
Submitted 12/77. Accepted 6/78.
2 / Geographical Analysis

Previous investigations of residential mobility established that the decision to

move is closely related to changes in a household’s life cycle [34],that the
frequency distribution of distances moved follows a negative exponential dis-
tribution [26], and that the reasons for movement include elements of the
neighborhood and economic constraints [ 7, 24,341.
The selection of a new residence within the city has often been characterized
as a complex process of decision making under uncertainty. One approach is to
conceptualize the intraurban migration process in two stages-the decision to
move and the actual choice of a destination. This division, suggested in [ 5 ] and
elaborated in [40, 411, has guided many of the modeling strategies that are
focused on the individual decision-making level. The separation, as we note
below, is not without its difficulties, and too often the choice of destination is
still characterized as an event rather than as a search process occurring over a
period of time.
Although conceptual statements concerning the search and selection process
[ 10, 471 have considerable intuitive appeal, they invariably stop short of formal
statements that allow one to make specific predictions concerning the spatial
and temporal aspects of search on the basis of well-defined, observable char-
acteristics. If we are to understand and predict mobility patterns within an
urban area, it is essential that both the search and selection processes be more
clearly specified than they are at present, and that deductions from the
resulting models be tested against the actual experiences of observed house-
holds.
The main concern of this paper is to develop a well-specified model of the
household’s decision-making process in an intraurban context. The model is
used to generate a reasonably complete set of measurable determinants relating
to the relocation and search process. In particular, the probability of further
search at any stage in the search process is related to both market and
individual characteristics. Hence the model gives rise to empirically testable
propositions.
The model we develop is based upon the Bernodian theory of decision
making under uncertainty, and has strong ties to models that have found
application in economics and management science. On the other hand, it is
remarkable that, although the model is embedded in a normative framework, it
gives rise to concepts that correspond unambiguously with some of the major
concepts of more behavioral theories. For example, the concepts of stress and
satisficing find natural counterparts in our model. The basic aim is to find a
model relating relatively simple and observable measures of a household’s
preference field, beliefs, income constraints, and degree of risk aversion to
observable behavior resulting from intraurban migration decisions. Hence we
obtain operational statements of such questions as: under what conditions will
search for a (new) location occur; how long will search continue before it
terminates in a purchase, a rental, or a return to the previous residential state;
where will search occur and how will the spatial aspects of the search process
vary over time?
The paper is organized as follows. A review of the relevant literature is
followed by a verbal summary of the model. A simplified version of this model
is then given a mathematical formulation, and this model is approximated in a
 Smith, Ckrk, Hi#, and Shqiro / 3

well-defined sense in order to obtain a search criterion involving only measur-

able determinants. Finally, we discuss the model and some of its policy
implications. It should be emphasized that our aim has been to produce a
prototype model combining behavioral and normative concepts that we, and
others, may use as an initial framework for empirical study and further
theoretical refinement.

REVIEW OF THE LITERATURE

Any review of the literature on residential mobility cannot help but be
extensive, and we have already noted the large number of references in [37].
This review, however, will be condensed to examine the relevant empirical
studies of spatial relocation and those studies in geography, economics, and
sociology that have attempted to formulate rational models of the residential
relocation process. We first consider the results of some empirical studies, and
then turn to more theoretical studies.
Empirical investigations of the spatial aspects of the residential relocation
process have focused either on the aggregate population flows between census
tracts and neighborhoods, or on the search behavior of individual households. In
relation to studies in the first category, Brown and Longbrake [ 4 ] employed
census tract data as a means of measuring the extent to which people move
between similar socioeconomic districts of the city. Simmons [38] analyzed the
flow of people between census tracts, and Clark [ 6 ] argued that income and
house value may be viewed as constraints that explain the manner in which
individuals choose neighborhoods in an urban area. At best, however, these
studies give only a general indication of the search procedures used in residen-
tial decision making.
More specific contributions to an understanding of decision making and
search behavior have resulted from the micro-level investigations of household
spatial behavior. This second category of studies may itself be broken into those
studies concerned with search behavior and those involving an analysis of the
relation between information and the household's relocation decision making.
The only substantive empirical studies of search behavior are those of Hempel
[ I S , 171 and Barrett [ 2 ] . These studies examined the search behavior of
individual households using questionnaires administered after the search pro-
cess was completed. The questionnaires focused on the extent to which small or
large numbers of vacancies were viewed, and the spatial pattern of search. The
studies, however, neither developed, nor were based upon, a satisfactory
theoretical structure for the analysis of search behavior, and the strategy of
using a one-time, a posteriori interview concerning a sequential decision-making
process raises many problems concerning the validity of the data.
Studies by Palmer [ 3 I ] ,Barresi [ I ] , and Palm [29, 301, on the other hand,
focused attention on the manner in which individuals gather information about
housing vacancies, and on the use of such information in reaching a decision. In
particular, the Palm study was concerned with the role of the realtor in
providing a sipficant bias in the prospective homebuyer's information model
of the market.
 4 / Geographical Analysis

Theoretical investigations of the intraurban migration process have led to

three broad modeling strategies. The first strategy involves the application of a
Markov model to speclfy the structure of intraurban migration; the second
concerns the relation between variations in the housing stock and migration;
and the third strategy is more specifically related to the actual decision-making
process involved in residential relocation.
The most comprehensive group of modeling strategies involves the use of a
Markov model to speclfy the structure of mobility rates and to analyze the
longitudinal characteristics of migration. In general, these models have focused
attention on the “when” aspects of mobility. As a result, space as a set of
geographic units has received only implicit attention, and the models do not
include neighborhood search and evaluation as an essential component.
Although we do not intend to undervalue the important advances made by the
demographers and sociologists who have examined the mobility process (e.g.,
McGinnis [ 2 2 ] ,McFarland [ 2 l ] ,Spilerman [ 4 2 ] ,and Ginsberg [ 1 1 , 12, l 3 ] ) ,it
should be stressed that they have taken one viewpoint and have not been
ditectly concerned with the decision-making behavior of individual households.
The same fact also characterizes the second group of models, which view
migration in relation to housing stock or neighborhood characteristics, and are
most usefully viewed as aggregate models of neighborhood change. Studies by
Quigley [33]and Moore [ 2 5 ]have been concerned with housing characteristics
in small areas, the movement of people through these housing stocks, and the
resulting impacts on communities and housing characteristics. On the other
hand, important findings concerning the changing quality of the housing stock
and the impact of residential mobility on the characteristics of small areas have
resulted from these studies.
The modeling strategy that most directly addresses the issue of the decision
processes involved in residential relocation was laid out by Brown and Moore
[ 5 ] . Their particular contribution was to separate the residential relocation
process into two stages-the decision to move and the actual relocation
decision-as well as to refine further the concepts of action space, search
behavior, and place utility. These latter concepts were introduced by Wolpert
[ 4 7 ] , who drew upon the psychological literature in developing a model of
search behavior.
It is important to emphasize, however, that neither of these discussions
indicates how either the concepts or the conceptual breakdown of the decision
process could be operationalized for practical application and hypothesis test-
ing. In particular, it is not clear that the decision to move is easily separable
from the search process and, as noted by several writers, the decision to move
does not necessarily precede the selection of an ultimate location, since the
availability of a particular house may stimulate the decision to move. Moreover,
the concept of stress, crucial to the model, is undefined, and it is unclear how
the model might be operationalized.
Later works attempted both to speclfy the functions involved and to estimate
empirically the parameters in the functions. Clark and Cadwallader [ 8 ]
attempted to use the concepts of stress and stress response as a way of
approaching the decision making involved in residential mobility, and Speare,
Goldstein, and Frey [ 4 l ] attempted to formulate a complete model of both the
 Smith, Clark, Huff, and Shapiro / 5

temporal and spatial aspects of the Brown and Moore structure. In this latter
specification, the migration process is broken into three parts (the development
of a desire to move, the selection of an alternative location, and the decision to
stay or move), which are viewed as interrelated. The evaluation of the present
residential location relative to alternative locations is incorporated into the
decision to stay or move. However, no specific model of the search procedure is
incorporated into the general model. The mathematical specification of the
verbal model essentially concentrates on listing the arguments of logit functions
related to the threefold decision process. The analysis of individual mobility is
extended to an aggregate mobility model, represented in terms of a linear
equation.
The preceding brief review of studies of intraurban migration indicates that
an adequate formal analysis of the decision-making process that both relates to
individual behavior and is operational is not available. In fact, a fairly thorough
literature search has revealed no papers relating actual household search
behavior to an expected utility/Bayesian theoretical framework, in which the
importance of uncertainty and attitudes to risk enter as signhcant components.
There is, however, a large body of literature dealing with optimal strategies
for sequential search. Much of this literature, however, is directed to the
problem of job search and the question of unemployment. Some early work in
this area was by Stigler [44], who assumed a decision process in which an
optimal number of job vacancies is selected for inspection. McCall’s later work
[20] emphasized the sequential nature of search and the existence of reserva-
tion wage levels, above which a job offer would be accepted. Further studies
(e.g., Kohn and Shavell [19]) emphasized the duration of search in relation to
personal characteristics, such as risk aversion, and other work has concentrated
on the information collecting aspects of search (see De Groot [9], Rothschild
[35]). Although these studies provide some general insights into search proce-
dures, the major aim of the researchers has generally been to obtain fairly
general statements concerning such features as aggregate unemployment. The
models are not generally expressed in a manner to permit calibration or the
testing of derived hypotheses. Applications of these models to housing market
situations are less common, although Nichols [27], Ionnides [18],and Flower-
dew [ 101 have specifically considered sequential search in housing markets.
However, none of these authors considers models that could be operationalized
easily for empirical research. In the models we develop below, we have
employed some of the concepts from the theory of optimal sequential search in
the face of uncertainty. These models are then used to generate testable
hypotheses concerning market search.

THE MODEL

Verbal Statement of the Model

In any model of the residential choice process, three sets of factors must be
considered: the characteristics of the prospective migrant that affect the
evaluation and choice of a new residence; the structure of the housing market;
and the interactions between the migrant and the market.
6 / Geographical Analysis

A prospective migrant household is viewed as having a set of preferences

defined over both housing and nonhousing commodities, an income constraint,
and a set of beliefs about the housing market. It is the household's preferences
that, coupled with a budget constraint and the individual's attitude toward risk,
enable the prospective migrant to choose between housing alternatives gener-
ated through the search process.
From the vantage point of the prospective migrant, the housing market
consists of a set of vacancies, each with an associated cost and a complex set of
housing and neighborhood characteristics. However, the structure of the infor-
mation sources available to the migrant and the marked spatial variation in
prices and in housing and neighborhood characteristics within the city suggest
that the housin market is in fact comprised of a number of really distinct
submarkets [45]. 5
If the household had perfect knowledge of the housing market, there would
be no need to disaggregate the market and the only interaction between the
migrant and the market would be the actual choice of the best alternative. In
fact, however, the household is making decisions under very uncertain condi-
tions. A household will have imperfect information concerning the spatial
distribution of dwelling and neighborhood characteristics and prices, as well as
the distribution of prices at any one location. As is usual in such situations of
imperfect information (see [35]),we may model the imperfection of information
in terms of probability distributions. Under these conditions the interaction
between the household and the market is much more complex, in that the
household is involved in a search process that both generates potential choices
and provides additional information about the character of the housing market.
This information is used to update the migrant's prior assessment of the housing
opportunities in the area surrounding the last observed vacancy. Given this new
assessment of the chances for success in the region surrounding the last
observation, the migrant may then decide to continue looking in that area, to
look elsewhere, or to stop searching and to choose the best alternative seen thus
far. This interaction between the migrant and the housing market is therefore a
spatial search process in which the potential migrant is faced with a sequential
choice problem.
An important aspect of the interaction between the household and the
market concerns the spatial choice of the area in which to search. Involved in
this decision is some known information about the area's spatial characteristics
-in particular, its location relative to work and family activities. Furthermore,
the prospective buyer may know something about the overall desirability of
particular neighborhoods, relating, for example, to the quality of the schools;
and, since the search process is itself costly, the prospective buyer may have
some information about the ease of finding a suitable house.
To complete the general description of the search and relocation process, we
must specdy some decision rules that clanfy the interaction between the
migrant and the market. First, we assume that the preferences and risk aversion
of the potential migrant can be represented in terms of a (cardinal) utility
function in the manner of the von Neumann-Morgenstern formulation [ 3 ] .In
'One may view the spatial variation in housing and neighborhood characteristics in terms of a
subjective or an objective basis.
 Smith, Clark, Huff, and Shupiro / 7
facing certain outcomes, the individual maximizes utility subject to constraints,
and in facing uncertain outcomes, the individual maximizes expected utility
subject to constraints? The expected utility is taken with respect to the
probability distribution representing the individual’s beliefs.
In connection with the search for a new home, we assume that the household
is to compare the expected utility of a situation involving search with the utility
of a situation without search (this may involve remaining in the present
dwelling or bidding on the best alternative house currently available). The
expected utility attached to search for a dwelling in a given neighborhood is
based upon the household’s prior estimates of the housing characteristics in the
area (e.g., the distribution of housing prices, lot sizes, number of bedrooms per
dwelling) and the expected costs of search in that area. On the positive side,
there is the chance of finding a better home, and at the least of improving the
household’s information concerning the market situation; on the negative side,
the household may incur various costs of search, including direct costs (such as
time given up), the transactions costs if a new home is purchased, and the
“costs” of losing a desirable vacancy to another bidder. If the expected utility of
search in a given area is greater than the household’s present utility, then we
shall assume that the area is included within the potential search space of the
prospective migrant. The difference between the expected utility of an area and
the present utility will be taken as a measure of locational stress [S]?
Given that the household has found a set of neighborhoods with respect to
which locational stress is positive, a decision must then be made as to the best
allocation of search activity among the various distinct areas in the potential
search space. By comparing the expected utility with the actual utility of the
present situation for every neighborhood, the household will obtain various
measures of stress. Obviously, positive stress will tend to initiate search, and one
would expect search to commence in the neighborhood giving the highest
degree of stress.
If search is commenced, the information obtained from any neighborhood is
used to revise prior beliefs concerning the market, since the household may or
may not find a house giving rise to higher utility, and it may or may not lose a
previously considered prospect to another bidder. These factors wiU influence
the expected utility of future search both in the last region searched and in the
other regions of the search space. Consequently, the household may decide to
search again, either in the same area or another, and as a result it may bid on a
vacancy, it may end the search and remain with its present housing situation, or
it may search even further.
In relation to the detailed process of examining vacancies, an important
question concerns the manner in which vacancies are selected for inspection in
the area giving rise to the highest stress. A tempting first approximation is that a
vacancy is chosen at random from the total list of vacancies in the area. If the

2The so-called expected utility hypothesis provides the most generally accepted approach to the
problem of making decisions under uncertainty. There is growing evidence that it has a powerful
explanatory role in many choice situations, and even that people who behave in a manner consistent
with this theory are the most s u d in their chosen careers (see [=I).
3We may also view the difference between the utilities of situations with and without search as a
measure of relative attractiveness rather than stress, depending on one’s taste for the alternative
expressions.
 8 / Geographical Analysis
area is relatively homogeneous in terms of variation between houses, this may
be an acceptable assumption. If, as is usually the case, the selection of a
vacancy to inspect precedes the journey to view the vacancy, our model of
search evidently corresponds to Schneider’s [36] case of route-finding search. It
is also quite probable that the list of vacancies in the area to be searched is
filtered, and that the choice of vacancies to be viewed is obtained from the
filtered set. Such a filtering process is often carried out with the aid of a realty
agent (see [17]). It does mean, however, that the selection of vacancies to
inspect is a two-stage process. In the following model development, the first
stage of selection is not considered. Given that we can correctly characterize
both the information updating procedures and the process by which a vacancy
is selected for inspection from the total list of vacancies in an area, the model
derived below allows one to predict, in principle at least, the probability of
rejection of a vacancy, and hence the probability of further search.
Although the verbal model indicates the important features of the process we
are attempting to model, it is necessary to develop a more formal presentation
of the ideas and to expand the concepts symbolically so that we can obtain
specific measurable concepts and testable hypotheses. Figure 1 attempts to
capture the most important aspects of the verbal model. We have included
symbolic notation that will be used in the formal development of the model. In
this way the schematic presentation acts as a transition from a general verbal
description to the formal symbolic structures.

A FORUAL STATEMENT OF THE MODEL

We assume a given household to have a utility function whose arguments

involve two sets of variables. The first set consists of nonhousing commodities
whose quantities (ql, . . . ,qn) can be varied continuously, and whose prices are
given by ( p , , . . . ,pn). The second set, represented by ( X l , . . . ,k),
consists of
the structural and neighborhood factors that constitute a “home,” with cost M?
The vector ( X l , . . . ,&) is nondivisible in the sense that it cannot be varied in
an arbitrary manner.
The household is assumed to have a utility function over the entire commod-
ity space

u=q q , , * * * ,qn,xl,* * 9 ,%),

and the traditional demand model would have it maximizing U by choices over
both the q’s and the X’s subject to a budget constraint Y > p ‘ q + M . Both sets
of variables would be assumed to vary continuously and the solution to the
constrained maximization problem would yield the usual demand function for
both the q variables and the housing commodities.
The difficulty with this approach is that the elements of the vector of housing
consumption cannot be varied continuously; they constitute a “package” that
cannot be easily disentangled. For instance, one house of 2,000 square feet is
not equivalent to two houses of 1,000 square feet each. Furthermore, changes in

4M may be viewed as a stream of housing payments

Composition and Update prior
distribution of beliefs con-
housing within cerning area.
General beliefs and attitudes. *
Information concerning the
spatial distribution of dwel-
lings and neighborhood
characteristics, and the costs
of dwellings and of search in
Personal attributes
, -I the various neighborhoods.
of the prospective
migrant including
income, housing,
and non-housing

of destination in area i, housing situation

present housing
JI /HB), where HB is discovered VB
current best alternative.
present housing
situation

in area i i f + >JIl I+, ible choice HB

through search.

Stop searching if VB for an

identical dwelling HB is such
r-that JI < 0 for all j.

FIG.1. Schematic Diagram of Decision-Making Model

 10 / Geographical Analysis

the housing bundle are not common day-to-day events. These changes con-
stitute major decisions in the life of a household.
A more accurate description of the household’s decision process (at least in
the short run) is that for daily decision making the bundle of housing is taken as
fixed. The shopping trip to the supermarket does not involve a household in the
decision about the optimal housing bundle. These short-run decisions can best
be described by the maximization of a “conditional” utility function.

The household choses the 4’s so as to maximize 6 subject to a budget constraint

that accounts for the precommitment of some income to housing expenditures.
The decision can be stylized as the solution to the following problem

max 6 subject to

pi qi = Y - M .

The solution to the problem yields the set of conditional demand functions.

4n=4n(pl , . . . , p , , y - M l X l . . . ~ ) .
Substituting these quantities into the utility function yields

U ( q l (P I , . . . ,p,, Y - MIXI . . . &), . . . ,qn(p 1 . . . p,, Y - MIX,, . . . ,&).

This substitution yields utility as a function of prices p , uncommitted income
Y - M , and as conditional on the vector of housing characteristics. This is the
conditional indirect utility function, written

v= v(p,, . . . p,, Y - MIX,, . . . ,&).

In order to concentrate on the main aspects of the analysis, we now assume a
single nonhouse commodity q, with associated price p , and a single housing
variable X (representing quantity and/or quality), giving rise to the conditional
indirect utility function

V=V(p,Y-M,X).
It is not difficult to generalize the following analysis to higher dimensional
vectors of characteristics, but it must be emphasized that we have begged the
important question of what set of characteristics constitutes a “home.”
The beliefs of the household concerning the housing situation, which may or
may not prompt the beginning of search, relate to three major sets of factors.
 Smith, Clark, Huff, and Shupiro / 11

The first is the set of beliefs concerning the spatial structure of the housing
market, and as a first approximation, we model these beliefs by assuming that a
household views the area of possible dwelling sites as being partitioned into a
finite number of areas, or neighborhoods, in each of which housing characteris-
tics are relatively homogeneous.
The second set of beliefs concerns the nature of the housing possibilities in
each of the neighborhoods. We assume these beliefs to take the form of a
subjective probability distribution Fi(X , M ) that describes the joint distribution
of housing characteristics and cost in the ith region (in general, one would
expect a positive correlation between X and M ) . The final set of beliefs
essentially relates to the costs of searching for a new dwelling.
These costs include the direct costs of search and the opportunity cost of
search time. Probably more important, however, are the transactions costs that
are involved once a tendered offer has been accepted, and a final search "cost"
of some importance involves the probability that a potential dwelling (found in
previous search) may be bid upon by another searcher should a bid be delayed
in favor of further search.
In connection with the household's preferences, these beliefs determine
whether the household will search for a new dwelling. The decision is reached
by comparing the expected utility of the household's situation were search to be
undertaken, with the utility of the present situation with no active search. We
now formalize the expected utility of a situation with search in order to arrive
at the decision criterion. To this end, consider a household with the current
housing situation Ho = (Xo,Mo)giving rise to a utility V". Several outcomes are
possible if the household decides to search for one more period. First, the
household may find a dwelling ( X , M ) that gives rise to a higher (or a lower)
overall utility than the current situation. Second, it may find in either case that
the expected utility of searching for another period is greater than the utility of
the current situation (or the best alternative). Third, if the household has
searched in a previous period and found a good option but delayed a bid, then
in the course of searching for another period, it may lose the prospect to
another bidder. Fourth, the process of further search may generate information
concerning the market, and this of itself may prove valuable. Finally, the search
process may involve costs, and a bid, if accepted, will also incur transactions
costs.
Besides the present housing situation Ho (giving rise to utility V"), the
household may have a housing option H B = (XB,MB)giving rise to a utility
V B>V".Let q(V B )be the expected utility of search at time t in region i given
that the best option currently available is HB. If we assume that the household
attempts to maximize its expected utility, it follows that the criterion function,
determining whether a household searches or not at any period and in any
region, is determined by comparing the expected utility of search with the best
utility available for certain ( V B )

*'=Et'( VB)- VB,

(where V B may equal V"). If \k' > O for any i, search will occur; the actual
search in any period will occur in the neighborhood giving rise to the highest
12 / Geographical Analysis

locational stress, P = max(\k’, . . . ,P”).

The criterion P may be interpreted as
locational stress or relative attractiveness. As we note below, although Pi >
(<)O is the condition determining whether search may or may not occur in
region i, it is possible to relate P to the probability of further search. This
relation is developed below.
We now develop an expression for the expected utility of search, E:( V”).We
first write a fairly general expression, following which we interpret and com-
ment upon the expression, and finally obtain a simplified form that may be cast
in an operational mold.
A fairly general expression for the expected utility of a situation involving
search may be written

E:(V”)=p{ Jvomax[
--m Vo,E,,,(V”)]dG(u)+~mmax[6,E,+,(u)]dG(~))
VO

where p is the probability of losing a prospective house to another bidder,

G( ) is the probability distribution function representing the household’s beliefs
concerning utility levels possible in terms of houses that might be found, and 6
is the utility when transactions costs are incurred.
The first term on the RHS represents the situation if the best alternative is
lost, and the household is left with the present utility V”. An implicit assump-
tion is that only one alternative is recallable from previous searches. Although it
is evidently possible to weaken this assumption, such would complicate the
present exposition. Given that HB is lost, the household may not find a better
house than Ho, (the first term inside the parentheses) or it may find a better
situation with search (the second term inside the parentheses). In either case,
the household may choose to settle for the best available dwelling (V” or u
respectively). However, if further search does occur expected utility in future
periods will differ from E:( V”),since it will not necessarily occur in region i,
and increasing opportunity costs from delaying the decision may be incurred. A
similar interpretation may be given to the second term on the RHS for the case
in which the best alternative HB is not lost.
One should note several points concerning the model. First, if search ends
with a bid on any house HBZHo, transactions costs will be incurred and their
effect is to lower the utility of the house; this effect is denoted by 6. Second,
the effects of the direct costs of search have been omittted from the model (the
transactions costs are probably more important in most cases). Third, we have
assumed that, although the household updates its market information at the end
of each period of search, it takes no explicit account of this effect in evaluating
the expected utility of further search. Finally, one may define a “period of
search” in several ways. For example, it may be considered as the viewing of a
single dwelling, or it may be viewed as a unit of time in which vacancies are
 Smith, Clurk, Huff, and Shupiro / 13

viewed and the best is selected. The form of the distribution function reflecting
the household's beliefs will account for such differences.
Given the form of the functional equation (2), and given that beliefs change
during search, (2) represents an extremely difficult expression from which to
determine an analytical form for E;( V"), and the costs of empirical verification
would probably exceed the benefits of such verification. Hence we now make
the first of two major assumptions. The first presumes that households have
quite limited horizons and ignore the expected utility of search in future
periods. In this case, (2) reduces to

[
E/ ( V" ) = p Vo/ vo dG(u )
-w
+ /V" 6dG(u ) ]
O0

+ (1 - p ) [ V"/ --mvBdG(u ) + / vy6 d G(v)], (3)

and (1)remains as the stress criterion for search in region i . The assumption
asserts that people search as if the present search period were to be the last
period of search. At the end, however, they revise their information and
reconsider their "decision." Search occurs at each stage in the area of highest
(positive) stress. At any point the area of search may change as beliefs are
modified and as new best alternatives are found. Search continues until \k' < 0
for neighborhoods.
Several important deductions may be drawn from the model (l),(3).First it
may be shown (see [ 101 for example) that such models possess a critical level of
utility V" such that if a vacancy offering a level of utility Vc is inspected, then
search ceases. Search will also cease if V>V" (satisfactory) and continue if
V<V" (in the present case, it should be noted that since beliefs may change
with search, then V" may also change). Second, there is a relationship between
the stress measure \k and the probability of further search P. For simplicity
consider the case of a housing market consisting of one neighborhood or area.
One may prove that if there exists some factor a that increases (or decreases)
the stress, then the probability of search in the next period, given the oc-
currence of search in the current period, must increase (decrease). In symbols,
if P is the conditional probability of search in the next period given search in
this period, then

This important fact may be proven as follows. The conditional probability of

further search is the probability that no satisfactory vacancy is found in the
current period, which is the probability that the vacancy viewed in the current
period is below the satisficing level V,. Hence
V'
14 / GeographicalAnalysis

where k ( u ) represents the objective distribution of utilik levels that the

individual could achieve in the market (in other words, G(u) is not to be
confused with the believed distribution of utility levels G(u)).Assume now that
\k depends positively on a,then

\k = \k( VB,a),

where V B is the utility of the best available alternative. The critical level of
utility V" is obtained by solving

\k( VB,a)=o

for VB,from which it follows that

vc=\k-1(o,a)=VC(a).

Hence the manner in which the probability of further search depends on a may
be obtained from

and assuming a density function &u) for k ( u ) :

Hence a P / a a has the same sign as aVc/aa;but from the defining equation for
vc,

or

Since it is immediate that stress is lower the better the best alternative
currently available (a\k/aV,<O),and since by assumption a\k/aa>O, it
follows that 3Vc/i3a> O and hence aP/aa >O. Hence, any factor increasing
stress increases the probability of further search. One may partially extend this
result to a composite market, if a increases the individual's stress level in all
areas of the market simultaneously. One may illustrate these ideas by consider-
ing specific factors that enter the stress criteria. For example, on obtaining the
derivative of (l),(3) with respect to the probability of losing an alternative p,
 Smith, Clark, Huff, and Shupiro / 15

one may show that a ' k / a p <0. Hence it follows that as the probability of losing
an alternative increases, so the probability of further search decreases. More-
over, it was noted above that the direction of change in stress with respect to
some factor a is the same as the direction of change of the reservation level of
utility V" with respect to that same factor. Since one may show that the
reservation level of utility increases directly with both wealth and initial utility
level V", it follows that the probability of search P also increases with wealth
(ceteris paribus) and with the initial level of utility V". It is apparent from these
previous remarks, which comprise part of the comparative statics of the model,
that such relations between 'k and P represent testable propositions obtaining
from the model.

LIMITED HORIZON APPROXIMATION AND THE DETERMINANTS OF SEARCH

We now turn to the main problem of the paper, which is to obtain an
operational form of the stress criterion, and to this end we must use the fact
that the utility function V depends explicitly on the housing characteristics
(M,X). The satisficing (or reservation) level of utility is now represented by a
curve in the X-M plane (see Fig. 2), and any vacancy to the right of this curve is
satisfactory. If we represent this frontier by M = M o ( X ) for all houses giving rise
to the same utility as Ho = (Mo,Xo), and take transactions costs t into account,

Iso-utility Lines

-Lines O f Equal
Quan t i t y Probobili t y
Density
of
Housing
X

L
Housing Cost M
FIG.2.
16 / Geographical Analysis

we may write the criterion (1)as

\ I I = p [ V ~ ( M o , X o ) J JMO(%F(m,x)+Jm
--m --m
rn JrnV(m+t,x)dF(m,x)
- 00 Mo(r) 1

At this point we introduce the second of our “localness” assumptions and

expand the indirect utility function in a Taylor series about the best option HB,
dropping terms of order higher than second. This truncation may be j ustifie
d
(see [46]),if the higher order moments of the probability beliefs F(m,x)are not
too large. The interpretation of expanding about H B is that households use the
best option as a refmeme point, whereas the truncation at second order may be
interpreted as meaning that households are only responsive to beliefs concern-
ing means, variances, and covariances.
It is a useful fact that the Taylor series expansion also allows one to define
distinguishing characteristics of the individuals in a manner that avoids the
ambiguities inherent in a representation of an individual in terms of a general
utility function V. In fact, as noted below, the individual characteristics are
related to the coefficients in the Taylor expansion. These coefficients may be
estimated using various psychometric techniques, and may be combined in
various ways to produce scale-free numbers that may be used to characterize
and compare individual responses.
The approximation to the utility function is

v(Y - M - t,x)

- Vy”x(MB-M)(XB-X)+V:
(XB - XI2
2 ’

where subscripts denote partial differentiation.

Substituting (6) into the criterion (5) one obtains an approximate criterion.
On dividing this criterion through by Vy”,one obtains a stress function that
depends on a measurable set of arguments. We first list these arguments and
 Smith, Chrk, Huff, and Shapiro / 17

then provide an interpretation.

( Z o - X B ) , (ZB
-X B ) , J- JMo(
00
O0
X)
dF(m,x ) , J JM B ( x )dF(m,4,
O0
--OO
O0

( m- a o ) 2dF(m, x ) , J J
l-: JMI( x ) -w
O0 O0
ME(%)
( m- dF(m, x ) ,

J-: lM:( x)
( x - Xo)’dF(m,x ) , /- O0

O0
J
&(x)
O0 ( x - $)2dF(m, x ) ,

( x - X O ) ( m - Boo)dF(m,x ) ,
J-- /MI( x )

As before, if 9 >0 in any region, search will occur, whereas if \k < O for all
regions, the best option is‘cho&n. The first four terms in (T), , remesent attitudes
to risk and preferences measured relative to the best avahble home HB;
S =V,”/ V: measures the rate at which the household trades off house pay-
ments against housing quantity/quality, being essentially the magnitude of the
slope of the indifference curve in Figure 2. R, = - :( V,”,/Vy”)is the usual
Arrow-Pratt [27]measure of risk aversion. For risk-averse households Ry is
positive and increasing with increasing aversion to risk or with respect to
expendable income Y - M. The number A, = - :( Vz/ V,”)may be given an
analogous interpretation to the degree of risk aversion concerning Y, and may
be interpreted as the price of the variance in X for the household. The
parameter T = ( Vr”,/ V,”) is less easy to interpret and is ambiguously signed. It is
p r o w o n a l to the percentage change in the marginal utility of expendable
income for a 1percent change in the quantity of house about X,.
There are two important points concerning the four preceding determinants.
First, according to the von Neumann-Morgenstern theory of expected utility,
the determinants are scale free. This is because the indirect utility for money
function V( Y - M , X ) is unique up to a linear transformation, i.e.,

W= aV+ b,a > 0

represents the same preferences as V. Since the determinants S,Ry, Rx, and T
are ratios of derivatives, they are independent of a and b and are hence scale
free, allowing comparisons to be made between households. Various techniques
are available for determining S, Ry, Rx, [151, although T raises some problems
18 / Geographical Analysis
at present. Current research in the Los Angeles housing market is directed to
obtaining measures of these parameters.
A second point is that, since \k depends on these parameters, it is possible to
characterize the probability of further search P in such terms. The method is
similar to that presented above. It is possible to represent the situation
graphically in the X-M plane, as in Figure 2. A given stress function leads to a
curve (relating to \ k = O ) describing the set of houses which, if found, would
leave individuals indifferent between searching further and not searching. If the
stress function is increased by a change in some parameter, the indifference
curve must shift upwards (from curve A to curve B), but the probability of
finding a home in the market with such characteristics must decrease. Hence, at
least if vacancies are inspected randomly, probability of further search in-
creases. Hence it is possible to obtain the comparative statics of the probability
of further search in terms of the individual characteristics S, Ry,Rx, and T. For
example, one may show that if two individuals have the same preferences over
housing bundles (i.e., the same indifference curves in the X-M plane) but
possess differing degrees of risk aversion (Rx,Ry) then a\k/aR<O and it
follows by the results of the previous section that aP/aR <0, or the probability
of further search decreases with risk aversion.
The remaining determinants all represent beliefs concerningthe nature of the
market. (MB + z - Mo) represents the difference in house payments between the
best option, if bid upon, aqd the present optiin. (X, - Xo) has a similar
interpretation. The term (Mo-M,) involves M, which is defined as the
expected cost of a k m e in the market given that it is preferred to the present
home Ho. Hence (Mo - M,) represents the difference between the conditional
expected cost and the cost cf the best alternative. The next three terms have a
similar interpretation, and X,, for example, is the expected quantity/quality of
house g i u a that it is preferred to H,. The next set of terms are merely beliefs
concerning the conditional variances and covarkgces in fie housing market.
For example, we may interpret J??,J~o~x~(x- Xo)(rn- Mo)dF(rn,x) as the
covariance between house quantity X and house cost M given that the house is
preferred to the present house Ho. As in the case of the risk-aversion measures,
techniques are available for eliciting such beliefs concerning means and vari-
ances [22].Again it is possible to obtain a comparative statics of the probability
of further search in terms of the parameters representing beliefs.
It is apparent that, with the exception of T, our approximate theory has
provided us with a “complete” set of determinang relating search behavior to
preferences, beliefs, constraints, and risk aversion, and that most of the determi-
nants are in principle measurable. In effect, the model represents a set of
testable hypotheses concerning the effects of the determinants of search.
An implication of the model is that it also represents a sequential decision
process, and hence must be tested in a sequential setting, rather than in an a
postiori manner with a single interview. Given the former mode of testing, two
problems become amenable to study. First, if one obtains empirical estimates of
the determinants in (7) at each stage, how useful is the criterion in determining
whether search will continue or stop at any point and where search will occur?
To test the model in this respect, it may be preferable to take a logistic
5complete, that is, with respect to OUT theory.
 Smith, Clurk, Huff, and Shaptro / 19

transformation of \k, since one should not, with an approximate model in a

noisy world, expect precise adherence to such a criterion. A second problem
would be to examine the manner in which beliefs are revised. There is evidence
[ 14, 431 that consumer search often involves Bayesian-like updating processes.
The full Bayesian rule, however, is analytically and computationally burden-
some (see [39]), and approximations to such a rule are probably more in line
with reality. The advantage to working with just means and variance/covari-
ances is that one may test for simple rules constraining their revision.
It is to be emphasized, however, that the previous model is a basis for current
empirical work in the Los Angeles housing market. The major questions left
unanswered in this paper relate to methods of measurement and calibration of
the model in order to test specific hypotheses derived from the model. Solutions
to these problems will be the subject matter of further papers.

CONCLUDING REMARKS
It is unnecessary to reemphasize the sigdicance of investigations of intraur-
ban migration. The decision to move and the decision of where to relocate are
still among the most important decisions made by households within the city.
Moreover, the implications of the decision range from the purely personal costs
and returns from a move to system-wide changes caused by the patterns of
population redistribution (and population redistribution is the result of the
aggregated decisions of many individual households).
The model of decision-making and search behavior of prospective migrants
that we have developed is designed to provide a clear explanation of the
relationship between the individual migrant’s preferences and perceptions, the
characteristics of the external environment in which the choice is to be made,
and the actual choice of a new residence. The development of a sequential
choice model that specifically incorporates measures of uncertainty is a sigdi-
cant step toward a model that is truly representative of the decision-making
process. The particular power of the model developed in this paper is also
derived from the fact that we have been able to derive and estimate specific
parameters to be tested with empirical data. In this sense the model goes
beyond the more conceptual models that were discussed and analyzed in the
literature review.
We now summarize the main implications of our derivation of the determi-
nants of search. First, it was observed that although an essentially normative
model of household behavior was used, the lumpiness of the housing market led
to a search process that could be described in terms of satisficing behavior. This
concept agrees with the ideas of Brown and Moore [ 5 ] .Second, the model gave
rise to a very natural concept of stress, or relative attractiveness, with positive
stress leading to search, which itself leads to the possibility of stress becoming
negative for any neighborhood in the area of search. Furthermore, a given
household may search but revert to its initial dwelling, or it may search and bid
upon a new residence, or it may not search at all. Hence the criterion makes it
perfectly clear that the decision to search and the search process cannot be
separated in any natural manner. Third, the model is fully “spatial” in the sense
that a stress criterion is defined for each neighborhood, with search occurring at
20 / Geographical Analysis

any time in that neighborhood giving rise to the highest positive stress. Fourth,
the “myopic” approximation to the model gave rise to a set of relatively simple
and measurable determinants of the search process that allow a testing of the
theory. In particular the measures relate to the preferences, constraints, beliefs,
and degrees of risk aversion characterizing the household, with the prefer-
ence/risk aversion measures being scale free.
Finally, by defining the conditional probability of further search, it is possible
to relate stress and further search. In particular, if stress increases, then the
indifference curve representing the set of “reservation” houses shifts in the
space of housing properties, but the actual distribution of houses does not
change. Hence, the probability of finding a house better than the reservation
house changes (and in fact the probability of further search increases if stress
increases). Hence any factor increasing stress increases the probability of
further search, and one may generate hypotheses relating search probabilities to
all the personal and market factors that enter the stress criteria.
Until the model proposed in this paper is tested with empirical data, it is
difficult to identdy with any possible policy implications. However, it is possible
to comment on the potential insights that the application of such a model to the
residential relocation process may elicit. First, the model suggests that we will
be able to say something about where households will search in the city. If this
is true it follows that we can say something about where they will relocate.
Given this information it may be possible to make statements about where the
different types of people with different housing needs will relocate and also
about general questions of population redistribution within the city. Second, the
repercussions of such population redistribution questions take us directly to the
issues involved in busing, the provision of public services, and the financing of
the metropolis. Our final aim is to have a model that will be a relevant
instrument for policy comment on population and housing within cities.
Finally, some fairly specific implications of the search process for dwellings
relate to the personal and societal costs attached to poor relocation decisions.
Many households who move within the city move again in a short period of
time after the initial move. This suggests, of course, the impact of a poor initial
relocation decision. We believe that these poor decisions are in large part due
to inadequate or inaccurate information concerning the distribution (both
spatial and temporal) of better alternatives. The model suggests ways in which
search procedures for prospective migrants can be identified and indicates the
kind of information that, if made available to a migrant, would lead to better
and more efficient relocation decisions.

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