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Probability weighting for losses and for gains among smallholder farmers in Uganda

Arjan Verschoor () and Ben D’Exelle
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Arjan Verschoor: University of East Anglia
Ben D’Exelle: University of East Anglia

Authors registered in the RePEc Author Service: Ben D'Exelle

Theory and Decision, 2022, vol. 92, issue 1, No 8, 223-258

Abstract: Abstract Probability weighting is a marked feature of decision-making under risk. For poor people in rural areas of developing countries, how probabilities are evaluated matters for livelihoods decisions, especially the probabilities associated with losses. Previous studies of risky choice among poor people in developing countries seldom consider losses and do not offer a refined tracking of the probability-weighting function (PWF). We investigate probability weighting among smallholder farmers in Uganda, separately for losses and for gains, using a method (common consequence ladders) that allows refined tracking of the PWF for a population with low levels of literacy. For losses, we find marked probability weighting near zero, which is in line with evidence found in Western labs. For gains, the absence of probability weighting is remarkable, particularly its absence near 100%. We also find marked differences in probability weighting for traditional farmers which are in line with the observed livelihoods strategies in the study area.

Keywords: Cumulative prospect theory; Probability weighting; Losses; Gains; Uganda (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s11238-020-09796-8

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