Eliciting farmers’ subjective probabilities, risk and uncertainty preferences using contextualized field experiments

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Abstract

Subjective probabilities as well as risk and uncertainty preferences influence many farmers’ decisions. Few contextualized field experiments were recently conducted to elicit farmers’ risk preferences. Contextualized field experiments use non-abstract framings that are familiar to subjects. Despite adding of context can undermine internal validity, such experiments are increasingly used in applied economics. This is because adding context has the potential to improve the external validity of experimental results. Contextualized field experiments were never used to elicit farmers’ uncertainty preferences. This paper aims to fill this gap in the literature. This required the development of a new approach in which uncertainty preferences were estimated while controlling for farmers’ subjective probabilities regarding future agricultural outcomes. The experiment involves Scottish farmers’ decisions to plant traditional or new potato varieties. Monetary incentives and incentive compatible elicitation techniques, such as quadratic scoring rules and certainty equivalent multiple price lists, were used. Results from the estimation of Fechner models using maximum likelihood estimation procedures show that failure to control for subjective probabilities generates an underestimation of estimated uncertainty preferences. Farmers are more averse to uncertainty than risk and their choices are noisier under uncertainty than risk.
Original languageEnglish
JournalAgricultural Economics
DOIs
Publication statusPublished - 11 Jul 2020

Keywords

  • contract farming; contextualized field experiments; uncertainty preferences; subjective probabilities; risk preferences

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