Empirical estimation and use of risk preferences (3 papers and discussion) . In: Proceedings, Joint session AAEA/American Economics Association, Allied Social Science Association meeting, Washington, D.C., 28-30 December 1981
Robison, L.J.; Pope, R.D.; Hazell, P.B.R.
American Journal of Agricultural Economics 64(2): 367-396
1982
ISSN/ISBN: 0002-9092 Document Number: 377969
This session of the 1981 joint AAEA/AEA meeting included three papers. (1) An appraisal of expected utility hypothesis (EUH) test constructed from responses to hypothetical questions and experimental choices (L.J. Robison, pp.367-375) reviews several studies which have applied the EUH to practical decision problems, and concludes that it has been inadequately evaluated, but is a useful, but far from perfect, predictor of choice behaviour. (2) Empirical estimation and use of risk preferences: an appraisal of estimation methods that use actual economic decisions (R.D. Pope, pp.376-383) concerns the conceptual basis, estimation procedures and resources required for implementation of methods for estimating risk preferences by observing behaviour. It reviews and appraises previous literature and explores some alternative approaches. It concludes that basic research is needed to develop suitable approaches. (3) Application of risk preference estimates in firm-household and agricultural sector models (P.B.R. Hazell, pp.384-390) reviews available methods for incorporating risk behaviour in farm and sector planning models. Direct elicitation of risk preferences is not likely to become a widespread approach. Pragmatic attempts to derive risk parameters from observed cropping patterns seem more promising. In constructing sector models, there are also difficult aggregation problems which further weaken the value of risk parameters elicited for individual farmers. H.P. Binswanger and T. Roe provide discussion.