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

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  • Berg, Nathan
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.

Suggested Citation

  • Berg, Nathan, 2010. "Success from Satisficing and Imitation: Entrepreneurs’ Location Choice and Implications of Heuristics for Local Economic Development," MPRA Paper 26594, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:26594
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    2. Blondiau, Yuliya & Reuter, Emmanuelle, 2019. "Why is the grass greener on the other side? Decision modes and location choice by wind energy investors," Journal of Business Research, Elsevier, vol. 102(C), pages 44-55.
    3. Akhtaruzzaman, M. & Berg, Nathan & Hajzler, Christopher, 2017. "Expropriation risk and FDI in developing countries: Does return of capital dominate return on capital?," European Journal of Political Economy, Elsevier, vol. 49(C), pages 84-107.
    4. Cucchiarini, Veronica & Scicchitano, Sergio & Viale, Riccardo, 2024. "The Entrepreneur's Cognitive and Behavioral Journey: Understanding Heuristics and Bias under Risk and Uncertainty," GLO Discussion Paper Series 1390, Global Labor Organization (GLO).
    5. Sipos, Norbert & Lukovszki, Lívia & Rideg, András & Vörös, Zsófia, 2023. "A vállalkozói döntéshozatali logikák kognitív megközelítése [Entrepreneurial effectuation through the lens of cognitive processes]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(5), pages 544-563.
    6. Berg, Nathan & Preston, Kate L., 2017. "Willingness to pay for local food?: Consumer preferences and shopping behavior at Otago Farmers Market," Transportation Research Part A: Policy and Practice, Elsevier, vol. 103(C), pages 343-361.
    7. Ida Ketut Kusumawijaya, 2019. "Predicting the Unseen: Entrepreneurial Opportunity on Entrepreneurial Intention," International Review of Management and Marketing, Econjournals, vol. 9(5), pages 141-149.
    8. Shabnam Mousavi & Gerd Gigerenzer, 2017. "Heuristics are Tools for Uncertainty," Homo Oeconomicus: Journal of Behavioral and Institutional Economics, Springer, vol. 34(4), pages 361-379, December.
    9. Deller, Steven C. & Conroy, Tessa & Markeson, Bjorn, 2018. "Social capital, religion and small business activity," Journal of Economic Behavior & Organization, Elsevier, vol. 155(C), pages 365-381.
    10. Reza Kheirandish & Shabnam Mousavi, 2018. "Herbert Simon, innovation, and heuristics," Mind & Society: Cognitive Studies in Economics and Social Sciences, Springer;Fondazione Rosselli, vol. 17(1), pages 97-109, November.
    11. Stingl, Verena & Geraldi, Joana, 2021. "A research agenda for studying project decision-behaviour through the lenses of simple heuristics," Technological Forecasting and Social Change, Elsevier, vol. 162(C).
    12. Berg, Nathan & Prakhya, Srinivas & Ranganathan, Kavitha, 2018. "A satisficing approach to eliciting risk preferences," Journal of Business Research, Elsevier, vol. 82(C), pages 127-140.
    13. Loock, Moritz & Hinnen, Gieri, 2015. "Heuristics in organizations: A review and a research agenda," Journal of Business Research, Elsevier, vol. 68(9), pages 2027-2036.

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    More about this item

    Keywords

    Process Model; Bounded Rationality; Interview Data; Ethnic; Discrimination; Low income; Neighborhood; Lexicographic; Non-compensatory; Business Owners;
    All these keywords.

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles

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