Behavioural Economics Seminar: Are farmers in developing countries risk-loving? A field experiment among Ethiopian farmers
Goytom Abraha Kahsay, Postdoc, Department of Food and Resource Economics, University of Copenhagen
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 find evidence that this is driven by “house money” effect which is in line with mental accounting theory.