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The Effect Of An Additional Alternative On Measured Risk Preferences In A Laboratory Experiment In Peru

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Author Info
Jim Engle-Warnick ()
Javier Escobal ()
Sonia Laszlo ()

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Abstract

We experimentally test for the effect of an additional alternative on the measured risk preferences of farmers in rural Peru. In our experiment, subjects revealed their risk was always dominated by one of the two existing gambles. We found that subjects chose this gamble nearly one quarter of the time, in some cases causing the subjects to appear to be more risk loving. We found that subjects in a traditional laboratory environment did not choose the dominated gamble, but their choices were affected by its presence.

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Paper provided by McGill University, Department of Economics in its series Departmental Working Papers with number 2006-10.

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Length: 36 pages
Date of creation: Sep 2006
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Handle: RePEc:mcl:mclwop:2006-10

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Find related papers by JEL classification:
O33 - Economic Development, Technological Change, and Growth - - Technological Change - - - Technological Change: Choices and Consequences; Diffusion Processes
O18 - Economic Development, Technological Change, and Growth - - Economic Development - - - Regional, Urban, and Rural Analyses
C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

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  1. Hans P. Binswanger, 1980. "Attitudes Toward Risk: Experimental Measurement in Rural India," Artefactual Field Experiments 0008, The Field Experiments Website. [Downloadable!]
  2. Shlomo Benartzi & Richard H. Thaler, 2001. "Naive Diversification Strategies in Defined Contribution Saving Plans," American Economic Review, American Economic Association, vol. 91(1), pages 79-98, March. [Downloadable!] (restricted)
  3. Kurosaki, Takashi & Fafchamps, Marcel, 2002. "Insurance market efficiency and crop choices in Pakistan," Journal of Development Economics, Elsevier, vol. 67(2), pages 419-453, April. [Downloadable!] (restricted)
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  4. Catherine Eckel & Cathleen Johnson & Claude Montmarquette, 2004. "Saving Decisions of the Working Poor: Short-and Long-Term Horizons," CIRANO Working Papers 2004s-45, CIRANO. [Downloadable!]
  5. Joseph Henrich & Richard McElreath, 2002. "Are Peasants Risk-Averse Decision Makers?," Artefactual Field Experiments 0057, The Field Experiments Website. [Downloadable!]
  6. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March. [Downloadable!] (restricted)
  7. Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December. [Downloadable!] (restricted)
  8. Binswanger, Hans P, 1981. "Attitudes toward Risk: Theoretical Implications of an Experiment in Rural India," Economic Journal, Royal Economic Society, vol. 91(364), pages 867-90, December. [Downloadable!] (restricted)
  9. Birnbaum, Michael H. & Patton, Jamie N. & Lott, Melissa K., 1999. "Evidence against Rank-Dependent Utility Theories: Tests of Cumulative Independence, Interval Independence, Stochastic Dominance, and Transitivity, , , ," Organizational Behavior and Human Decision Processes, Elsevier, vol. 77(1), pages 44-83, January. [Downloadable!] (restricted)
  10. Shahabuddin, Quazi & Mestelman, Stuart & Feeny, David, 1986. "Peasant Behaviour towards Risk and Socio-Economic and Structural Characteristics of Farm Households in Bangladesh," Oxford Economic Papers, Oxford University Press, vol. 38(1), pages 122-30, March. [Downloadable!] (restricted)
  11. Marianne Bertrand & Dean S. Karlan & Sendhil Mullainathan & Eldar Shafir & Jonathan Zinman, 2005. "What's Psychology Worth? A Field Experiment in the Consumer Credit Market," Working Papers 918, Economic Growth Center, Yale University. [Downloadable!]
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  12. Mette Wik & Tewodros Aragie Kebede & Olvar Bergland & Stein T. Holden, 2004. "On the measurement of risk aversion from experimental data," Applied Economics, Taylor and Francis Journals, vol. 36(21), pages 2443-2451, December. [Downloadable!] (restricted)
  13. Grisley, William & Kellog, Earl, 1987. "Risk-taking preferences of farmers in northern Thailand: Measurements and implications," Agricultural Economics, Blackwell, vol. 1(2), pages 127-142, June. [Downloadable!] (restricted)
  14. Feder, Gershon & Just, Richard E & Zilberman, David, 1985. "Adoption of Agricultural Innovations in Developing Countries: A Survey," Economic Development and Cultural Change, University of Chicago Press, vol. 33(2), pages 255-98, January.
  15. Feder, Gershon, 1980. "Farm Size, Risk Aversion and the Adoption of New Technology under Uncertainty," Oxford Economic Papers, Oxford University Press, vol. 32(2), pages 263-83, July. [Downloadable!] (restricted)
  16. Sachiko Miyata, 2003. "Household's risk attitudes in Indonesian villages," Applied Economics, Taylor and Francis Journals, vol. 35(5), pages 573-583, March. [Downloadable!] (restricted)
  17. Hans P. Binswanger, 1981. "Attitudes Toward Risk: Theoretical Implications of an Experiment in Rural India," Artefactual Field Experiments 0009, The Field Experiments Website. [Downloadable!]
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