Choice Under Uncertainty in Developing Countries
AbstractWe review experimental evidence collected from risky choice experiments using poor subjects in Ethiopia, India and Uganda. Using these data we estimate that just over 50% of our sample behaves in accordance with expected utility theory and that the rest subjectively weight probability according to prospect theory. Our results show that inferences about risk aversion are robust to whichever model we adopt when we estimate each model separately. However, when we allow both models to explain portions of the data simultaneously, we infer risk aversion for subjects behaving according to expected utility theory and risk seeking behavior for subjects behaving according to prospect theory. We conclude that the current practice of designing policies under the assumption that one or other explains all behavior is fundamentally flawed.
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Bibliographic InfoPaper provided by The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham in its series Discussion Papers with number 2005-18.
Date of creation: Oct 2005
Date of revision:
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choice under uncertainty; field experiments; developing countries;
Find related papers by JEL classification:
- O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
- D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
This paper has been announced in the following NEP Reports:
- NEP-AFR-2006-01-24 (Africa)
- NEP-ALL-2006-01-24 (All new papers)
- NEP-CWA-2006-01-24 (Central & Western Asia)
- NEP-DEV-2006-01-24 (Development)
- NEP-EXP-2006-01-24 (Experimental Economics)
- NEP-UPT-2006-01-24 (Utility Models & Prospect Theory)
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