Success from Satisficing and Imitation: Entrepreneurs’ Location Choice and Implications of Heuristics for Local Economic Development

Nathan Berg

MPRA Paper from University Library of Munich, Germany

Abstract: Decisions about location choice provide an opportunity to compare the predictions of optimization models, which require exhaustive search through very large choice sets, against the actual decision processes used by entrepreneurs choosing where to allocate investment capital. This paper presents new data on entrepreneurs’ self-described decision processes when choosing where to locate, based on scripted interviews with 49 well-placed business owners and senior managers in charge of location choice. Consideration sets are surprisingly small, especially among those who are successful. According to entrepreneurs’ own accounts, locations are frequently discovered by chance rather than systematic search. Few describe decision processes that bear any resemblance to equating marginal benefit with marginal cost as prescribed by standard optimization theory. Nearly all interviewees describe location choice decisions based on threshold conditions, providing direct evidence of satisficing rather than optimization. Imitation is beneficial for small investment projects. Decision process data collected here suggests a need to rethink standard policy tools used to stimulate local economic development.

Keywords: Process Model; Bounded Rationality; Interview Data; Ethnic; Discrimination; Low income; Neighborhood; Lexicographic; Non-compensatory; Business Owners (search for similar items in EconPapers)
JEL-codes: D03 (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-ent, nep-geo and nep-ure
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Related works:
Journal Article: Success from satisficing and imitation: Entrepreneurs' location choice and implications of heuristics for local economic development (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:26594

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