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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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File URL: http://www.rennes.inra.fr/smart/Media/Working-papers/WP11-06
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Bibliographic Info

Paper provided by INRA UMR SMART in its series Working Papers SMART - LERECO with number 11-06.

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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. 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.
  2. 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.
  3. José Apesteguía & Miguel A. Ballester, 2004. "A Theory Of Reference-Dependent Beavior," Documentos de Trabajo - Lan Gaiak Departamento de Economía - Universidad Pública de Navarra 0402, Departamento de Economía - Universidad Pública de Navarra.
  4. 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.
  5. Arnaud Reynaud & Stéphane Couture, 2012. "Stability of risk preference measures: results from a field experiment on French farmers," Theory and Decision, Springer, vol. 73(2), pages 203-221, August.
  6. Andersen, Steffen & Harrison, Glenn W. & Lau, Morten Igel & Rutström, Elisabet E., 2010. "Behavioral econometrics for psychologists," Journal of Economic Psychology, Elsevier, vol. 31(4), pages 553-576, August.
  7. 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.
  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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