Structural estimation of farmers’ risk and ambiguity preferences: a field experiment

Bougherara, Douadia; Gassmann, Xavier; Piet, Laurent; Reynaud, Arnaud

doi:10.1093/erae/jbx011

Cited by 50 publications

(46 citation statements)

References 62 publications

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“…The vast majority of these investigations used incentive compatible and incentivized elicitation techniques and are conducted in developing countries. The MPL (e.g., Bougherara, Gassmann, Piet, & Reynaud, 2017) and CE MPL (e.g., Barham et al, 2014) were widely used. However, there are no studies attempting to use contextual framing to elicit farmers' attitudes toward ambiguity and uncertainty.…”

Section: Eliciting Ambiguity and Uncertainty Preferencesmentioning

confidence: 99%

Eliciting farmers’ subjective probabilities, risk, and uncertainty preferences using contextualized field experiments

Cerroni

2020

Agricultural Economics

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Subjective probabilities as well as risk and uncertainty preferences influence many farmers’ decisions. Few contextualized field experiments were recently conducted to elicit farmers’ risk preferences. Contextualized field experiments use nonabstract framings that are familiar to subjects. Despite adding of context can undermine internal validity, such experiments are increasingly used in applied economics. Contextualized field experiments were never used to elicit farmers’ uncertainty preferences. This paper aims to fill this gap in the literature. This required the development of a new approach in which uncertainty preferences were estimated while controlling for farmers’ subjective probabilities regarding future agricultural outcomes. The experiment involves Scottish farmers’ decisions to plant traditional or new potato varieties. Monetary incentives and incentive compatible elicitation techniques, such as quadratic scoring rules and certainty equivalent multiple price lists, were used. Results from the estimation of Fechner models using maximum likelihood estimation procedures show that failure to control for subjective probabilities generates an underestimation of estimated uncertainty preferences. Farmers are more averse to uncertainty than risk, and their choices are noisier under uncertainty than risk.

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Section: Eliciting Ambiguity and Uncertainty Preferencesmentioning

confidence: 99%

Eliciting farmers’ subjective probabilities, risk, and uncertainty preferences using contextualized field experiments

Cerroni

2020

Agricultural Economics

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“…Participants were instructed that real payouts are reconverted by the factor of one thousand. Furthermore we reduce complexity and consequential inconsistent behavior by including a pie chart displaying proportions next to the verbal presentation of decisions as a visual aid (Bougherara, Gassmann, & Piet, 2011;Reynaud & Couture, 2012) (an example of the visual presentation as well as full instructions are found in Figure A1 in the Appendix). To incentivize the MPL we follow Maart-Noelck and Musshoff (2014) and informed farmers that at the end of the survey period 10% of all participants are selected for real payouts based on their choices 6 .…”

Section: Contextualized Multiple Price List (Mpl)mentioning

confidence: 99%

Risk perceptions, preferences and management strategies: evidence from a case study using German livestock farmers

Meraner

Finger

2017

Journal of Risk Research

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We analyze factors affecting farmers' choice accounting for farm, farmer and household characteristics as well as elicited risk perception and risk preferences. We consider three alternative hypothetical methods for assessing risk preferences to test the stability and behavioral validity of them. Our case study focusses on livestock farmers in the German region North-Rhine-Westphalia. We find that risk preferences are context depending, i.e. differ across different fields of farm-level decision making. Furthermore, our analysis shows that risk averse farmers are more likely to prioritize on-farm risk management strategies over off-farm strategies. Moreover, higher risk perception, age, subjective numeracy, farm succession, farm size and the proportion of rented land show significant impact on farmers' risk behavior.

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“…However, we cannot empirically test for such phenomena, as we have not implemented losses in our multiple price lists. For instance, Babcock (2015) shows that cumulative prospect theory can adequately explain violations of expected utility theory in farmers' purchase of insurance, and there is an emerging experimental literature that investigates farmers' loss aversion (Bocqu eho et al, 2013;Bougherara et al, 2017;Bauermeister et al, 2018). List (2004) has argued that inexperienced traders' behaviour is best described by prospect theory; whereas experienced traders' behaviour is sufficiently described by expected utility theory.…”

Section: Discussionmentioning

confidence: 99%

Contextual Framing and Monetary Incentives in Field Experiments on Risk Preferences: Evidence from German Farmers

Rommel¹,

Hermann²,

Müller³

et al. 2018

J Agricultural Economics

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Recent studies cast doubt on the ability of abstract experiments to predict decision-making in the field. Thus, scholars have argued for more 'realism' by introducing context to field experiments. Yet, such realism may work against the induced values of monetary incentives in economic experiments. It is an open question whether contextual framing works best with or without inducing values, through methods such as the use of monetary incentives. Using a sample of 146 German farmers, we compare experimentally the predictive power of a framed lottery in an agricultural context vs. using an abstract version. For one half of the sample, lotteries are incentivised; for the other half, they are hypothetical. Although risk preferences differ between treatments, all four lottery tasks correlate poorly with farmers' real-world use of risk management instruments such as harvest or hail insurance. Subjects who start with an agricultural framing are willing to take significantly greater risks in the lotteries. More generally, our findings cast doubt on the ability of lottery tasks to predict risk-taking in the field.

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Structural estimation of farmers’ risk and ambiguity preferences: a field experiment

Cited by 50 publications

References 62 publications

Eliciting farmers’ subjective probabilities, risk, and uncertainty preferences using contextualized field experiments

Eliciting farmers’ subjective probabilities, risk, and uncertainty preferences using contextualized field experiments

Risk perceptions, preferences and management strategies: evidence from a case study using German livestock farmers

Contextual Framing and Monetary Incentives in Field Experiments on Risk Preferences: Evidence from German Farmers

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