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

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

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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File URL: http://www.sciencedirect.com/science/article/B6T3V-45DNNRV-1Y/2/7938e8cac8a9a8403432ba27c6b6b4e9
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Article provided by Blackwell in its journal Agricultural Economics.

Volume (Year): 6 (1992)
Issue (Month): 4 (April)
Pages: 333-344

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Handle: RePEc:eee:agecon:v:6:y:1992:i:4:p:333-344
Contact details of provider: Web page: http://www.blackwell-synergy.com/loi/agec

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  1. Eugene F. Fama, 1963. "Mandelbrot and the Stable Paretian Hypothesis," The Journal of Business, University of Chicago Press, vol. 36, pages 420.
  2. 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(02), December.
  3. Lin, William W. & Chang, Hui S., 1978. "Specification Of Bernoullian Utility Function In Decision Analysis," Agricultural Economics Research, United States Department of Agriculture, Economic Research Service, issue 1.
  4. Buccola, Steven T., 1982. "Portfolio Selection Under Exponential And Quadratic Utility," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 7(01), July.
  5. Carl S. Spetzler & Carl-Axel S. Staël Von Holstein, 1975. "Exceptional Paper--Probability Encoding in Decision Analysis," Management Science, INFORMS, vol. 22(3), pages 340-358, November.
  6. Hans Binswanger, 1980. "Attitudes toward risk: Experimental measurement in rural india," Artefactual Field Experiments 00009, The Field Experiments Website.
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