Expected Utility or Prospect Theory Maximizers? Results from a Structural Model based on Field-experiment Data

Géraldine Bocquého, Florence Jacquet and Arnaud Reynaud

No 114257, 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland from European Association of Agricultural Economists

Abstract: We elicit risk preferences of French farmers in a field experimental setting under expected utility theory and cumulative prospect theory. We use two different estimation methods, namely the interval approach and the estimation of a random preference model. On average, farmers are risk averse and loss averse. They also exhibit an inverse S-shaped probability weighting function, meaning that they tend to overweight small probabilities and underweight high probabilities. We infer from our results that CPT explains farmers’ behaviour better than EUT in the context of our experiment. We also investigate how preferences correlate with individual socio-demographic characteristics. We find that education and agricultural innovation are negatively linked with risk aversion. Our results also show that age, education, household size and the level of secured income tend to lower farmers’ loss aversion. Finally, older farmers and farmers with large farms distort probabilities less than the others. These findings contribute to the literature which compares expected utility with competing decision theories. They also give important insights into farmers’ behaviour towards risk, which is critical for relevant public policy design.

Keywords: Risk; and; Uncertainty (search for similar items in EconPapers)
Pages: 14
Date: 2011
New Economics Papers: this item is included in nep-evo, nep-exp and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:eaae11:114257

DOI: 10.22004/ag.econ.114257

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