Eliciting Risk Preferences: A Field Experiment on a Sample of French Farmers

Douadia Bougherara, Xavier Gassmann and Laurent Piet (laurent.piet@inra.fr)

No 114266, 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland from European Association of Agricultural Economists

Abstract: We designed a field experiment involving real payments to elicit farmers’ risk preferences. Farmers are a very interesting sample to study since risk has always played an important role in agricultural producers’ decisions. Besides, European farmers may face more risky situations in the future. In this context, it is very important for any economic analysis focusing on agriculture to correctly assess farmers’ behaviour in the face of different sources of risk. We test for two descriptions of farmers’ behaviour: expected utility and cumulative prospect theory. We use two elicitation methods based on the procedures of Holt and Laury (2002) and Tanaka et al. (2010) on a sample of 30 French farmers. The experiment consists in asking subjects to make series of choices between two lotteries with varying probabilities and outcomes. We estimate parameters describing farmers’ risk preferences derived from structural models. We find farmers are slightly risk averse in the expected utility framework. In the cumulative prospect theory frame, we find farmers display either loss aversion or probability weighting, tending to overweight small probabilities and to underweight high probabilities. In our study, expected utility is not a good description of farmers’ behaviour towards risk.

Keywords: Risk; and; Uncertainty (search for similar items in EconPapers)
Pages: 11
Date: 2011
New Economics Papers: this item is included in nep-agr, nep-evo, nep-exp and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:eaae11:114266

DOI: 10.22004/ag.econ.114266

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