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Decision-making Under Risk among Small Farmers in East Uganda

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  • Steven J. Humphrey
  • Arjan Verschoor
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    Abstract

    We report an experimental test of individual decision-making behaviour under risk conducted in rural east Uganda. The test employs an incentive compatible design where subjects were paid according to the outcome of one of their choices. We find that the risk preferences of east Ugandan farmers exhibit systematic and predictable deviations from expected utility maximisation. These include violations of the independence and transitivity axioms of expected utility theory, and reference-dependent preferences. Not all deviations are the same as those which emerge from tests using (generally) student subjects at First World universities (e.g., we observe an S-shaped rather than an inverse S-shaped probability weighting function). We also find evidence of a substantial stochastic component to behaviour. The implications of our findings in terms of the appropriate characterisation of risk preferences in applied policy analyses are discussed. Copyright 2004, Oxford University Press.

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    Bibliographic Info

    Article provided by Centre for the Study of African Economies (CSAE) in its journal Journal of African Economies.

    Volume (Year): 13 (2004)
    Issue (Month): 1 (March)
    Pages: 44-101

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    Handle: RePEc:oup:jafrec:v:13:y:2004:i:1:p:44-101

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    Cited by:
    1. Vegard Iversen & Cecile Jackson & Bereket Kebede & Alistair Munro & Arjan Verschoor, 2006. "What`s love got to do with it? An experimental test of household models in East Uganda," Economics Series Working Papers WPS/2006-01, University of Oxford, Department of Economics.
    2. Vegard Iversen et al, 2009. "Does one size fit all? An experimental test of household models in East Uganda," Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers 09-04, Indian Statistical Institute, New Delhi, India.
    3. Bruno S. Frey, 2005. "Knight Fever: Towards an Economics of Awards," CREMA Working Paper Series 2005-12, Center for Research in Economics, Management and the Arts (CREMA).
    4. Klaus Abbink & Matthew Ellman, 2004. "The donor problem," Economics Working Papers 796, Department of Economics and Business, Universitat Pompeu Fabra, revised Jan 2005.
    5. Alexia Gaudeul, 2009. "A (Micro) Course in Microeconomic Theory for MSc Students," Working Papers id:1986, eSocialSciences.
    6. Ihli, Hanna Julia & Chiputwa, Brian & Musshoff, Oliver, 2013. "Do Changing Probabilities or Payoffs in Lottery-Choice Experiments Matter? Evidence from Rural Uganda," Discussion Papers 158146, Georg-August-Universitaet Goettingen, GlobalFood, Department of Agricultural Economics and Rural Development.
    7. Iversen, Vegard & Jackson, Cecile & Kebede, Bereket & Munro, Alistair & Verschoor, Arjan, 2011. "Do Spouses Realise Cooperative Gains? Experimental Evidence from Rural Uganda," World Development, Elsevier, vol. 39(4), pages 569-578, April.
    8. Alpaslan Akay & Peter Martinsson & Haileselassie Medhin & Stefan Trautmann, 2012. "Attitudes toward uncertainty among the poor: an experiment in rural Ethiopia," Theory and Decision, Springer, vol. 73(3), pages 453-464, September.
    9. Ihli, Hanna Julia & Musshoff, Oliver, 2013. "Investment Behavior of Ugandan Smallholder Farmers: An Experimental Analysis," Discussion Papers 154775, Georg-August-Universitaet Goettingen, GlobalFood, Department of Agricultural Economics and Rural Development.
    10. Lybbert, Travis J. & Galarza, Francisco B. & McPeak, John G. & Barrett, Christopher B. & Boucher, Stephen R. & Carter, Michael R. & Chantarat, Sommarat & Fadlaoui, Aziz & Mude, Andrew G., 2010. "Dynamic Field Experiments in Development Economics: Risk Valuation in Morocco, Kenya, and Peru," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 39(2), April.
    11. Kim, Jong-Sun & Cameron, Donald, 2013. "Typology of farm management decision-making research," International Journal of Agricultural Management, Institute of Agricultural Management & International Farm Management Association, vol. 2(2), January.
    12. Ihli, Hanna Julia & Musshoff, Oliver, 2013. "Understanding the Investment Behavior of Ugandan Smallholder Farmers: An Experimental Analysis," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150331, Agricultural and Applied Economics Association.
    13. Pavlo R. Blavatskyy, . "Axiomatization of a Preference for Most Probable Winner," IEW - Working Papers 230, Institute for Empirical Research in Economics - University of Zurich.

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