How Bayesian Are Farmers When Making Climate Adaptation Decisions? A Computer Laboratory Experiment for Parameterising Models of Expectation Formation

Abstract

As the consequences of climate change for agricultural production slowly unfold at the local level (sometimes with contradicting signals), farmers' information processing and decision making become more relevant for policy analysis and modelling. The major challenge is to reveal patterns in the way farmers form expectations about future production outcomes and to encode these findings into models of heterogeneous expectation formation. We developed and tested a payout-motivated field experiment to observe farmer decision-making under climate change and to examine how they form their expectations in a recursive-dynamic context. Participants were exposed to ambiguity and acquired incremental evidence about the true distribution of possible climate outcomes through repeated random draws. Simulation models used in agricultural and environmental research usually implement simple forms of adaptive agent expectation or completely neglect this issue by assuming perfect foresight or constant expectations. Our computer laboratory experiments with blue-and white-collar farmers from Southwest Germany (n = 97) suggest that expectation behaviour of a large share of farmers can be well replicated with Bayesian types of expectation models.

A probabilistic framework for forecasting maize yield response to agricultural inputs with sub-seasonal climate predictions

“…The probabilistic approach presented in this study may assist farmers in their early management plans with a grasp of the risk associated to their decisions. One could argue that most farmers tend to think Bayesian when interpreting weather forecast data [13,64,65]. Farmers can only hypothesize what the next growing season will entail, yet they need to make management decisions well in advance, facing climatic and socioeconomic risks [66].…”

Dealing with low‐probability shocks: The role of selected heuristics in farmers’ risk management decisions

“…To this end, we presented hypothetical historic shocks from 2001 to 2020, which appeared successively year by year, on a full‐screen bar chart (Figure 3, Step 2). By representing a sequence of events to explore the effect of experience, we followed the literature (Bradbury et al., 2015; Eisele et al., 2021; Hertwig et al., 2004; Kaufmann et al., 2013). In the third step, participants had to make a decision using the same decision sheet that was shown to participants in the control.…”

Experience of shocks, household wealth and expectation formation: Evidence from smallholder farmers in Kenya

“…Even though consequences of adverse risks are particularly severe in these settings, to date there is still little empirical evidence on the individual-specific determinants of expectations about uncertain events elicited specifically from decision-makers in developing countries and/or rural contexts (Attanasio, 2009;Delavande, 2014;Eisele et al, 2021). The scarce empirical evidence includes Bellemare (2009), who studies subjective perceptions of tenure insecurity of smallholder farmers under different contracting scenarios; Lybbert et al (2007), who look at rainfall expectation formation of pastoralists in Ethiopia and Kenya; and Giné et al (2009), who analyse Indian farmers' subjective beliefs about monsoon rains and their accuracy.…”

“…Only recently has the importance of taking into account farmers’ expectations when analysing their preferences regarding risk and uncertainty been recognized (Cerroni, 2020; Menapace et al., 2013; Ricome & Reynaud, 2022). Even though consequences of adverse risks are particularly severe in these settings, to date there is still little empirical evidence on the individual‐specific determinants of expectations about uncertain events elicited specifically from decision‐makers in developing countries and/or rural contexts (Attanasio, 2009; Delavande, 2014; Eisele et al., 2021). The scarce empirical evidence includes Bellemare (2009), who studies subjective perceptions of tenure insecurity of smallholder farmers under different contracting scenarios; Lybbert et al.…”