Linking risk preferences and risk perceptions of climate change: A prospect theory approach

Abstract

This article explores how farmer risk preferences are related to their perception of risk of climate change. We measure risk preferences and risk perceptions using a survey and a lab‐in‐the‐field experiment conducted with one of the most vulnerable groups to climate change in Latin America. We find that farmers that behave in accordance with the assumptions of Prospect Theory —a paradigm where risk preferences are characterized by risk aversion, loss aversion, and probability distortion—are more likely to perceive greater risks of climate change. Our results contribute to the understanding of farmer behavior in developing countries. Moreover, since perception of a risk is a necessary prerequisite for deciding on actions to adapt to climate risk, the results have important policy implications for the development and adoption of new technologies aimed at mitigating the effects of climate change (climate‐smart agricultural technologies).

Farmers' risk preferences in 11 European farming systems: A multi‐country replication of Bocquého et al. (2014)

“…Hence, we cannot draw very strong conclusions regarding the use of online versus face‐to‐face data collection, but we note less between‐sample heterogeneity on these aspects for online data collection. It is an open question as to how far adjusting tasks for improved simplicity and comprehension, as well as realism and engagement (e.g., Charness & Viceisza, 2016; Menapace et al, 2016; Meraner et al, 2018; Villacis et al, 2021) could have improved these scores.…”

“…The modification of Bocquého et al (2014) consisted of multiplying the lottery stakes by 10 and deleting two rows from the first price list. The Tanaka et al (2010) task has been used in other studies with farmers (e.g., Bougherara et al, 2017; Liu, 2013; Sagemüller & Mußhoff, 2020; Villacis et al, 2021), but Bocquého et al (2014) is one of the few studies dealing with CPT in European agriculture (see Bonjean, 2022 or Kreft et al, 2021 for other European examples). In each of the three multiple price lists (cf.…”

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

“…Our study has some limitations. Although the degree of contextualization is higher than in agricultural economics literature with multiple price lists (Rommel et al., 2019; Villacis et al., 2021), there is room for improvement, for instance, by asking specifically for the WTP for drought insurance. We expect that the effect of heuristics will be amplified through a higher degree of contextualization, which will lead to further intuitive actions.…”

“…Our multiple price list design is a modified version of the frequently applied design introduced by Tanaka et al. (2010; see, e.g., Hou et al., 2020; Magnan et al., 2020; Villacis et al., 2021; Zhao & Yue, 2020). Our modification includes three changes.…”

Farmers’ Adaptation to Extreme Weather: Evidence from Rural China

“…The occurrence of extreme weather such as droughts, oods, and hail can increase farmers' risk perceptions of the current environmental (Cohen et al, 2008;Lybbert et al, 2012;Khan et al, 2020;Martey & Kuwornu, 2021). Farmers with stronger risk perceptions are more aware of the hazards caused by extreme weather and are more inclined to adopt risk management strategies such as climate-adaptive technology (Patt & Schröter, 2008;Fahad & Wang, 2018;Li et al, 2021;Villacis et al, 2021). Second, extreme weather can facilitate the farmers' adoption of climate-adaptive technology by improving their participation in credit.…”