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Choice of utility function form: its effect on classification of risk preferences and the prediction of farmer decisions

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  • Sugu M.M. Zuhair
  • Daniel B. Taylor
  • Randall A. Kramer

Abstract

In applications of expected utility analysis, researchers are confronted with a choice among several utility functional forms. Subjective utility values and probability distributions for price and yield were elicited from Sri Lankan producers of minor export crops. Exponential quadratic and cubic utility functions were estimated. The choice of functional form was found to affect both the classification of risk attitudes and the prediction of harvesting strategy. The exponential function was the best predictor of harvesting strategy because it was the best predictor of mature harvesting. All three functions were equally poor predictors of premature harvesting.

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  • Sugu M.M. Zuhair & Daniel B. Taylor & Randall A. Kramer, 1992. "Choice of utility function form: its effect on classification of risk preferences and the prediction of farmer decisions," Agricultural Economics, International Association of Agricultural Economists, vol. 6(4), pages 333-344, April.
  • Handle: RePEc:bla:agecon:v:6:y:1992:i:4:p:333-344
    DOI: 10.1111/j.1574-0862.1992.tb00192.x
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    1. Anderson, Jock R. & Dillon, John L. & Hardaker, Brian, 1977. "Agricultural Decision Analysis," Monographs: Applied Economics, AgEcon Search, number 288652, July.
    2. H. M. G. Herath & J. Brian Hardaker & Jock R. Anderson, 1982. "Choice of Varieties by Sri Lanka Rice Farmers: Comparing Alternative Decision Models," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 64(1), pages 87-93.
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    4. Musser, Wesley N. & Wetzstein, Michael E. & Reece, Susan Y. & Musser, Lynn M. & Varca, Philip E. & Chou, Charlene C.J., 1984. "Classification Of Risk Preferences With Elicited Utility Data: Does Functional Form Matter?," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 9(2), pages 1-7, December.
    5. Hanoch, Giora & Levy, Haim, 1970. "Efficient Portfolio Selection with Quadratic and Cubic Utility," The Journal of Business, University of Chicago Press, vol. 43(2), pages 181-189, April.
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    7. Torkamani, Javad, 2006. "Measuring and Incorporating Farmers’ Personal Beliefs and Preferences about Uncertain Events in Decision Analysis: A Stochastic Programming Experiment," Indian Journal of Agricultural Economics, Indian Society of Agricultural Economics, vol. 61(2), pages 1-15.

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