Goytom Abraha Kahsay

"Are farmers in developing countries risk-loving? A field experiment among Ethiopian farmers"

Abstract

Risk preference affects individuals’ behavior in a number of economic domains and measuring it accurately is important for policy decisions. Recent field experiments find puzzling evidence that farmers in developing countries exhibit a higher risk tolerance as compared to people in developed countries. This contrasts studies that find that farmers in developing countries are risk averse in observed real world behavior. We conduct a field experiment to elite risk preference of farmers in Ethiopia. We find that more than 65% of participants in the experiment exhibit a higher degree of risk taking. We also find suggestive evidence that this is driven by “house money” effect which is in line with mental accounting theory. These results provide an important insight into the role of religion and culture when using experimental methods in eliciting risk preferences.

Contact person: Neda Trifkovic