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Choice Under Uncertainty in Developing Countries

Author

Listed:
  • Glenn Harrison

    () (Department of Economics, College of Business Administration, University of Central Florida)

  • Steven Humphrey

    () (School of Economics, University of Nottingham)

  • Arjan Verschoor

    () (School of Development Studies, University of East Anglia)

Abstract

We review experimental evidence collected from risky choice experiments using poor subjects in Ethiopia, India and Uganda. Using these data we estimate that just over 50% of our sample behaves in accordance with expected utility theory and that the rest subjectively weight probability according to prospect theory. Our results show that inferences about risk aversion are robust to whichever model we adopt when we estimate each model separately. However, when we allow both models to explain portions of the data simultaneously, we infer risk aversion for subjects behaving according to expected utility theory and risk seeking behavior for subjects behaving according to prospect theory. We conclude that the current practice of designing policies under the assumption that one or other explains all behavior is fundamentally flawed.

Suggested Citation

  • Glenn Harrison & Steven Humphrey & Arjan Verschoor, 2005. "Choice Under Uncertainty in Developing Countries," Discussion Papers 2005-18, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
  • Handle: RePEc:cdx:dpaper:2005-18
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    File URL: http://www.nottingham.ac.uk/cedex/documents/papers/2005-18.pdf
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    Cited by:

    1. Gheyssens, Jonathan & G√ľnther, Isabel, 2012. "Risk Experiments in Gains and Losses: A Case Study for Benin," WIDER Working Paper Series 038, World Institute for Development Economic Research (UNU-WIDER).

    More about this item

    Keywords

    choice under uncertainty; field experiments; developing countries;

    JEL classification:

    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments

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