Measuring risk preferences in rural Ethiopia: Risk tolerance and exogenous income proxies

Ferdinand Vieider (), Abebe Beyene, Randall Bluffstone, Sahan Dissanayake, Zenebe Gebreegziabher, Peter Martinsson and Alemu Mekonnen

Discussion Papers, WZB Junior Research Group Risk and Development from WZB Berlin Social Science Center

Abstract: Risk aversion has generally been found to decrease in income or wealth. This may lead one to expect that poor countries will be more risk averse than rich countries. Recent comparative findings with students, however, suggest the opposite, giving rise to a riskincome paradox. We test this paradox by measuring the risk preferences of over 500 household heads spread over the highlands of Ethiopia. We do so using certainty equivalents, which have rarely been used in developing countries, but permit us to relate the findings to a host of evidence from the West. We find high degrees of risk tolerance, in agreement with the student comparisons finding higher risk tolerance in poorer countries. We also find risk tolerance to increase in income proxies, thus completing the paradox. We thereby use income proxies that can be considered as exogenous, allowing us to conclude that at least part of the causality must run from income to risk tolerance. We furthermore provide extensive methodological discussions on measuring and estimating risk preferences in development settings.

Keywords: risk preferences; development; experimental methodology (search for similar items in EconPapers)
JEL-codes: C93 D03 D80 O12 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-agr, nep-cbe, nep-dev, nep-exp and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/103425/1/798028866.pdf (application/pdf)

Related works:
Working Paper: Measuring risk preferences in rural Ethiopia: risk tolerance and exogenous income proxies (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:wzbrad:spii2014401

Access Statistics for this paper

More papers in Discussion Papers, WZB Junior Research Group Risk and Development from WZB Berlin Social Science Center Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().