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Lab and life: Does risky choice behaviour observed in experiments reflect that in the real world?

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  • Verschoor, Arjan
  • D’Exelle, Ben
  • Perez-Viana, Borja

Abstract

Risk preferences play a crucial role in a great variety of economic decisions. Measuring risk preferences reliably is therefore an important challenge. In this paper we ask the question whether risk preferences observed in economic experiments reflect real-life risky choice behaviour. We investigate in a sample representative for a rural region of eastern Uganda whether pursuing farming strategies with both a higher expected profit and greater variance of profits is associated with willingness to take risks in an experiment. Controlling for other determinants of risk-taking in agriculture, we find that risky choice behaviour in the experiment is correlated with risky choice behaviour in real life in one domain, i.e. the purchase of fertiliser, but not in other domains, i.e. the growing of cash crops and market-orientation more broadly. Our findings suggest that economic experiments may be good at capturing real-world risky choice behaviour that is narrowly bracketed.

Suggested Citation

  • Verschoor, Arjan & D’Exelle, Ben & Perez-Viana, Borja, 2016. "Lab and life: Does risky choice behaviour observed in experiments reflect that in the real world?," Journal of Economic Behavior & Organization, Elsevier, vol. 128(C), pages 134-148.
  • Handle: RePEc:eee:jeborg:v:128:y:2016:i:c:p:134-148
    DOI: 10.1016/j.jebo.2016.05.009
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    Cited by:

    1. Lionel Page & Dipanwita Sarkar & Juliana Silva-Goncalves, 2018. "Long-lasting effects of relative age at school," QuBE Working Papers 056, QUT Business School.
    2. Gary Charness & Thomas Garcia & Theo Offerman & Marie Claire Villeval, 2019. "Do measures of risk attitude in the laboratory predict behavior under risk in and outside of the laboratory?," Working Papers 1921, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
    3. Freudenreich, H., 2018. "Explaining Mexican Farmers Adoption of Hybrid Maize Seed - The Role of Social Psychology, Risk and Ambiguity Aversion," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 277410, International Association of Agricultural Economists.

    More about this item

    Keywords

    Risk preferences; Experimental methodology; External validity; Choice bracketing; Agricultural investment;

    JEL classification:

    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets

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