THE ACCURACY OF PRODUCERS' PROBABILITY BELIEFS: EVIDENCE AND IMPLICATIONS FOR INSURANCE VALUATION

Bruce Sherrick

Journal of Agricultural and Resource Economics, 2002, vol. 27, issue 01, 17

Abstract: The accuracy of producers' subjective probability beliefs is examined through a survey of large cash-grain farmers in Illinois. Findings reveal that their subjective probability beliefs about important weather variables are systematically mis-calibrated. The nature and extent of differences between subjective probability beliefs and probabilities based on long-term historic weather data are shown empirically, and through fitted calibration functions. The economic significance of inaccurate subjective probability beliefs is established in the context of insurance valuation. The results demonstrate that significant errors in producers' risk assessments and insurance valuation arise as a consequence of producers' systematically inaccurate probability beliefs.

Keywords: Risk; and; Uncertainty (search for similar items in EconPapers)
Date: 2002
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:jlaare:31076

DOI: 10.22004/ag.econ.31076

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