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The Effect of an Additional Alternative on Measured Risk Preferences in a Laboratory Experiment in Peru

  • Jim Engle-Warnick
  • Javier Escobal
  • Sonia Laszlo

We experimentally test for the effect of an additional alternative on the measured risk preferences of farmers in rural Peru. In our experiment, subjects revealed their risk preferences with a series of choices between two gambles. We added a third gamble, which was always dominated by one of the two existing gambles. We found that subjects chose this gamble nearly one quarter of the time, in some cases causing the subjects to appear to be more risk loving. We found that subjects in a traditional laboratory environment did not choose the dominated gamble, but their choices were affected by its presence. Une étude expérimentale a été menée dans le but de vérifier l'incidence qu'un choix supplémentaire peut avoir sur les préférences mesurées des fermiers des zones rurales du Pérou à l'égard du risque. Au cours de notre expérience, les sujets étaient appelés à exprimer leurs préférences face au risque en fonction d'une série de choix entre deux loteries. Nous avons ajouté une troisième loterie, laquelle était toujours dominée par une des deux loteries existantes. Nous avons pu constater que, le quart du temps, les sujets choisissaient cette nouvelle loterie, de sorte que, dans certains cas, les sujets semblaient être plus enclins au risque. Nous avons constaté, dans un environnement de laboratoire traditionnel, que les sujets ne choisissaient pas la loterie dominée, mais que leurs choix étaient influencés par sa présence.

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File URL: http://www.cirano.qc.ca/files/publications/2006s-06.pdf
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Paper provided by CIRANO in its series CIRANO Working Papers with number 2006s-06.

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Length: 34 pages
Date of creation: 01 May 2006
Date of revision:
Handle: RePEc:cir:cirwor:2006s-06
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  16. Antle, John M & Crissman, Charles C, 1990. "Risk, Efficiency, and the Adoption of Modern Crop Varieties: Evidence from the Philippines," Economic Development and Cultural Change, University of Chicago Press, vol. 38(3), pages 517-37, April.
  17. Grisley, William & Kellog, Earl, 1987. "Risk-Taking Preferences of Farmers in Northern Thailand: Measurements and Implications," Agricultural Economics of Agricultural Economists, International Association of Agricultural Economists, vol. 1(2), June.
  18. Marianne Bertrand & Dean S. Karlan & Sendhil Mullainathan & Eldar Shafir & Jonathan Zinman, 2005. "What's Psychology Worth? A Field Experiment in the Consumer Credit Market," Working Papers 918, Economic Growth Center, Yale University.
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