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The disposition effect in farmers' selling behavior – an experimental investigation

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  • Vollmer, Elisabeth
  • Hermann, Daniel
  • Mußhoff, Oliver

Abstract

The identification of the optimal selling time of stored goods is among the most essential eco- nomic decisions on a farm. Beyond monetary aspects, behavioral factors may influence farm- ers’ selling behavior. In financial economics, the disposition effect is a commonly observed phenomenon. It indicates that investors hold losing stocks too long, while they sell stocks that have increased in value too early. In the context of agriculture, this behavioral bias has not been analyzed thoroughly yet. To close this research gap, we conducted an incentivized online experiment with 112 farmers in Germany. The experimental design was based on well-proven experiments from financial economics and adapted to an agricultural decision context where stored goods must be sold. Farmers were provided information on the uncertain price devel- opments. In addition, lotteries were conducted to elicit farmers’ risk attitude, probability weighting, and loss aversion. Results indicate that there is a robust disposition effect in farm- ers’ selling behavior. Furthermore, more loss-averse farmers exhibited a higher disposition effect.

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  • Vollmer, Elisabeth & Hermann, Daniel & Mußhoff, Oliver, 2017. "The disposition effect in farmers' selling behavior – an experimental investigation," Department of Agricultural and Rural Development (DARE) Discussion Papers 260767, Georg-August-Universitaet Goettingen, Department of Agricultural Economics and Rural Development (DARE).
  • Handle: RePEc:ags:gadadp:260767
    DOI: 10.22004/ag.econ.260767
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    1. Alexis H. Villacis & Jeffrey R. Alwang & Victor Barrera, 2021. "Linking risk preferences and risk perceptions of climate change: A prospect theory approach," Agricultural Economics, International Association of Agricultural Economists, vol. 52(5), pages 863-877, September.
    2. Elisabeth Vollmer & Daniel Hermann & Oliver Musshoff, 2019. "The disposition effect in farmers’ selling behavior: an experimental investigation," Agricultural Economics, International Association of Agricultural Economists, vol. 50(2), pages 177-189, March.

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