I can see why he would be the safer bet but the arrogance is a bit off-putting. He is more than able to do the job but gets better exposure where he is at the moment. Why move? It's a step down which makes it obvious to me it's not the next step up in his career as he said in the interview and is for some other reason.
There is a fine line between arrogance and confidence, and someone who is extremely confident of something will appear arrogant even when they don't intend to be. I've interviewed people who were extremely experienced and they almost seemed offended by some of the questions asked or gave very blunt responses, but it is like asking someone if they can tie a shoe lace and they say "yes, of course, i've been doing that for 40 years"
It does seem likely candidate 1 wont stay long but that is often the case with good candidates! Experiences and talented people can more or less walk into any job they want and have no issues chopping and changing.
We have this issue because we only hire the very best candidates but they only stick around for 2 years or so before moving on to bigger and better things, or simply trying a different company out. This has downsides, but the upside is you have a good candidate.
Good employees tend to be mobile, especially when young, bad employees fear going on the job market and will stay put.
I would call up candidate 1 and be very frank and open bout your concerns and see what he has to say. There might be compelling reasons why he wants the job, or he may not really want the job at all and is just applying to test the waters/practice/JSA and would likely turn down the offer.