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A structural estimation of French farmers’ risk preferences: an artefactual field experiment

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  • Douadia Bougherara
  • Xavier Gassmann
  • Laurent Piet

Abstract

We designed an artefactual field experiment involving real payments to elicit French farmers’ risk preferences. We test for two descriptions of farmers’ behaviour: expected utility and cumulative prospect theory and for preference stability across context (price risk and yield risk). We use multiple price lists where farmers make series of choices between two lotteries with varying probabilities and outcomes in the gain and loss domains. We estimate parameters describing farmers’ risk preferences derived from structural models. We find farmers are slightly risk averse in the expected utility framework. In the cumulative prospect theory frame, we find farmers display either loss aversion or probability weighting, tending to overweight small probabilities and to underweight high probabilities. We also estimate the reference point and find it not significantly different from zero. Cumulative prospect theory is a better description of farmers’ risk attitudes. We find risk preferences vary across context.

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Bibliographic Info

Paper provided by INRA UMR SMART in its series Working Papers SMART - LERECO with number 201106.

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Length: 17 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:rae:wpaper:201106

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Keywords: risk attitudes; field experiment; farmer;

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  1. Bocqueho, Geraldine & Jacquet, Florence & Reynaud, Arnaud, 2011. "Expected Utility or Prospect Theory Maximizers? Results from a Structural Model based on Field-experiment Data," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114257, European Association of Agricultural Economists.
  2. Couture, Stéphane & Reynaud, Arnaud, 2010. "Stability of Risk Preference Measures: Results from a Field Experiment on French Farmers," TSE Working Papers 10-151, Toulouse School of Economics (TSE).
  3. Tomomi Tanaka & Colin F. Camerer & Quang Nguyen, 2010. "Risk and Time Preferences: Linking Experimental and Household Survey Data from Vietnam," American Economic Review, American Economic Association, vol. 100(1), pages 557-71, March.
  4. Andersen, Steffen & Harrison, Glenn W. & Lau, Morten Igel & Rutström, Elisabet E., 2009. "Behavioral Econometrics for Psychologists," Working Papers 04-2009, Copenhagen Business School, Department of Economics.
  5. Jose Apesteguia & Miguel A. Ballester, 2007. "A theory of reference-dependent behavior," Economics Working Papers 1056, Department of Economics and Business, Universitat Pompeu Fabra.
  6. Glenn Harrison & E. Rutström, 2009. "Expected utility theory and prospect theory: one wedding and a decent funeral," Experimental Economics, Springer, vol. 12(2), pages 133-158, June.
  7. Rulon D. Pope, 2003. "Agricultural Risk Analysis: Adequacy of Models, Data, and Issues," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(5), pages 1249-1256.
  8. Levon Barseghyan & Jeffrey Prince & Joshua C. Teitelbaum, 2011. "Are Risk Preferences Stable across Contexts? Evidence from Insurance Data," American Economic Review, American Economic Association, vol. 101(2), pages 591-631, April.
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