Eliciting Risk Preferences: A Field Experiment on a Sample of French Farmers
We designed a field experiment involving real payments to elicit farmers’ risk preferences. Farmers are a very interesting sample to study since risk has always played an important role in agricultural producers’ decisions. Besides, European farmers may face more risky situations in the future. In this context, it is very important for any economic analysis focusing on agriculture to correctly assess farmers’ behaviour in the face of different sources of risk. We test for two descriptions of farmers’ behaviour: expected utility and cumulative prospect theory. We use two elicitation methods based on the procedures of Holt and Laury (2002) and Tanaka et al. (2010) on a sample of 30 French farmers. The experiment consists in asking subjects to make series of choices between two lotteries with varying probabilities and outcomes. 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. In our study, expected utility is not a good description of farmers’ behaviour towards risk.
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- Andersen, Steffen & Harrison, Glenn W. & Lau, Morten Igel & Rutström, Elisabet E., 2009.
"Behavioral Econometrics for Psychologists,"
04-2009, Copenhagen Business School, Department of Economics.
- Steffen Andersen & Glenn W. Harrison & Morten Igel Lau & Elisabet E. Rutstroem, 2007. "Behavioral Econometrics for Psychologists," Working Papers 2007_08, Durham University Business School.
- Andersen, Steffen & Harrison, Glenn W. & Lau, Morten Igel & Rutström, Elisabeth E., 2007. "Behavioral Econometrics for Psychologists," Working Papers 18-2007, Copenhagen Business School, Department of Economics.
- Glenn Harrison & E. Rutström, 2009. "Expected utility theory and prospect theory: one wedding and a decent funeral," Experimental Economics, Springer;Economic Science Association, vol. 12(2), pages 133-158, June.
- Tversky, Amos & Kahneman, Daniel, 1992. "Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
- 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 557-571, March.
- Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
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