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The Role of Bounded Rationality in Farm Financing Decisions – First Empirical Evidence –

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  • Musshoff, Oliver
  • Hirschauer, Norbert
  • Wassmuss, Harm

Abstract

Farmers do not often change from their house bank to another bank, even if the competing banks offer better conditions. This “reluctance to switch” can be explained, on the one hand, by the transaction costs resulting from such a change of business relation. On the other hand, it may be the result of bounded rationality. The results of a survey of North German farmers show that they are indeed bounded rational borrowers. They greatly underestimate the monetary disadvantages which are caused by the higher interest rates for loans from their house bank. In other words: They do not switch bank even if their individually perceived transaction costs are already “covered” by the lower interest rates of the alternative loan offer.

Suggested Citation

  • Musshoff, Oliver & Hirschauer, Norbert & Wassmuss, Harm, 2009. "The Role of Bounded Rationality in Farm Financing Decisions – First Empirical Evidence –," 2009 Conference, August 16-22, 2009, Beijing, China 51545, International Association of Agricultural Economists.
    • Handle: RePEc:ags:iaae09:51545
    DOI: 10.22004/ag.econ.51545
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    References listed on IDEAS

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    1. Akerlof, George A & Dickens, William T, 1982. "The Economic Consequences of Cognitive Dissonance," American Economic Review, American Economic Association, vol. 72(3), pages 307-319, June.
    2. Bruno Frey & Matthias Benz & Alois Stutzer, 2004. "Introducing Procedural Utility: Not Only What, but Also How Matters," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 160(3), pages 377-401, September.
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    Cited by:

    1. Appel, Franziska & Musshoff, Oliver, 2011. "How appropriate are myopic optimization models to predict decision behaviour: A comparison between agent-based models and business management games," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 115994, European Association of Agricultural Economists.
    2. Guenther-Lübbers, Welf & Arens, Ludwig & Theuvsen, Ludwig, 2013. "Climate-Adapted Soil Cultivation as an Aspect for Sustainable Farming –," 2013 International European Forum, February 18-22, 2013, Innsbruck-Igls, Austria 164769, International European Forum on System Dynamics and Innovation in Food Networks.
    3. von Davier, Zazie & Heyder, Matthias & Theuvsen, Ludwig, 2010. "Media Analysis on Volatile Markets’ Dynamics and Adaptive Behavior for the Agri-Food System," International Journal on Food System Dynamics, International Center for Management, Communication, and Research, vol. 1(3), pages 1-12, October.

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