This study investigates risk and time preferences of small-holder cattle farmers in West Africa. We apply a discounted utility model and jointly estimate a prospect theory-based utility function and a quasi-hyperbolic discounting function using a maximum likelihood method. Results show that West African farmers are less loss-averse and are more patient than suggested by comparable studies in Asian developing countries. The main factors influencing farmers' risk and time preferences are cattle herd size and net revenue from sales of cattle products.

Simultaneous estimation of risk and time preferences among small-scale cattle farmers in West Africa

ABSTRACT This article sought to understand the behavior of young low-income university students through an experiment based on prospect and hyperbolic discounting theory, with risk and time preferences, and their relationships with financial literacy with regard to choice probability distortions. There is a notable lack of studies that simultaneously address risk and time preferences in low-income urban groups, relating experiments based on prospect theory to capture probability distortions in choice processes. This study opens the doors for the question of the relationship between poverty and risk and time preferences to be better discussed in Brazil with the aim of providing evidence that supports national financial literacy plans. The study shows the importance of financial education as a means of reducing agents’ probability distortion. This is crucial, given that probability distortion is one of the pillars of prospect theory. This experiment was based on prospect and hyperbolic discounting theory and used value, weight, and quasi-hyperbolic discounting functions within a maximum likelihood methodology to estimate the risk and time parameters with sociodemographic variables, and with the Financial Literacy Index moderating variable, in a private HEI, with 54 students and 5,940 lotteries. It was observed that low-income urban populations in emerging economies have similar risk and loss aversion parameters to rural populations in developing countries. Low-income students have a greater preference for the present, with it being perceived that a small increase in income is associated with a higher level of patience, making decisions more rational. A better financial education could lead to a smaller probability distortion.

How do young low-income university students deal with risk and time preferences in Brazil?,

The purpose of this study is to verify, enlightened by Prospect Theory, whether women have lower risk tolerance than men in organizational decisions. A field experiment was conducted with 236 managers (115 women and 121 men) divided into two groups (both with men and women): a control group (personal decisions) and an experimental group (organizational decisions) and, afterwards, the 115 women were evaluated separately. All data were analyzed by logistic regression using two models. The results indicate that the initial assumption regarding decisions in the personal field those women are less risk tolerant than men applies less often when decisions are made in the organizational field. Moreover, the influence of gender on risk tolerance is more evident in situations involving gains than in situations of losses. The findings of the study provide reflections on the theme by stating that assumptions accepted by the literature in the field of personal decisions may not be applicable or totally valid in decisions in the organizational field, nor are they the same for gain or losses situations.

Risk tolerance in organizational decisions: women and men in gain and loss situations

RESUMO O objetivo deste artigo foi buscar compreender o comportamento de jovens universitários de baixa renda por meio de um experimento baseado na teoria do prospecto e do desconto hiperbólico, com preferências de risco e tempo, e suas relações com a alfabetização financeira no que se refere às distorções de probabilidades de escolhas. Nota-se a carência de estudos que abordem, ao mesmo tempo, as preferências de risco e tempo em grupos urbanos de baixa renda, relacionando experimentos baseados na teoria do prospecto para captar distorções de probabilidade nos processos de escolhas. Este estudo abre portas para que a questão da relação entre pobreza e preferências ao risco e tempo sejam mais bem discutidas no Brasil com o intuito de trazer evidências que colaborem para planos de alfabetização financeira nacional. O estudo demonstra a importância da educação financeira como meio de diminuir a distorção de probabilidades dos agentes. Isso se torna crucial, dado que a distorção de probabilidades é um dos pilares da Teoria do Prospecto. Este experimento foi baseado na Teoria de Prospecto e do desconto hiperbólico e utilizou as funções valor, peso e de desconto quase hiperbólico dentro de uma metodologia de máxima verossimilhança para estimação dos parâmetros de risco e de tempo com variáveis sociodemográficas e com a variável moderadora Índice de Alfabetização Financeira, em uma IES privada, com 54 alunos e 5.940 loterias. Observou-se que populações urbanas de baixa renda em economias emergentes possuem parâmetros de aversão ao risco e perda similares a populações rurais de países em desenvolvimento. Os alunos de baixa renda têm uma maior preferência pelo presente, sendo percebido que um pequeno aumento da renda está associado a um maior nível de paciência, tornando as decisões mais racionais. Uma maior educação financeira poderia induzir a uma menor distorção das probabilidades.

Como jovens universitários de baixa renda lidam com as preferências ao risco e tempo no Brasil?,

This study aims to analyze risk preferences in Brazil based on prospect theory by estimating the risk aversion parameter of the expected utility theory (EUT) for a select sample, in addition to the value and probability function parameter, assuming various functional forms, and a newly proposed value function, the modified log. This is the first such study in Brazil, and the parameter results are slightly different from studies in other countries, indicating that subjects are more risk averse and exhibit a smaller loss aversion. Probability distortion is the only common factor. As expected, the study finds that behavioral models are superior to EUT, and models based on prospect theory, the TK and Prelec weighting function, and the value power function show superior performance to others.  Finally, the modified log function proposed in the study fits the data well, and can thus be used for future studies in Brazil.

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Prospect theory: a parametric analysis of functional forms in brazil

Resumo: A preferencia ao risco e um fator importante que influencia uma ampla gama de decisoes financeiras pessoais (SNELBECKER; ROSZKOWSKI; CUTLER, 1990) e e definida como a quantidade maxima de incerteza que alguem esta disposto a aceitar ao tomar uma decisao financeira ou a disposicao de se envolver em comportamentos cujos resultados sao incertos com possibilidade de se ter um resultado negativo identificavel (IRWIN, 1993). Nesse contexto, a Teoria do Prospecto surge como um modelo alternativo descritivo de escolha sob incerteza. Tendo em vista a importância crescente da influencia de aspectos comportamentais no ambiente financeiro, neste estudo buscou-se analisar as preferencias ao risco no Brasil seguindo os preceitos da Teoria do Prospecto. Para tal, por meio de questionarios de loterias (utilizadas no estudo de RIEGER; WANG; HENS, 2011), foram estimados para uma amostra de estudantes e profissionais, os parâmetros das funcoes valor (com inclusao da funcao logaritmica modificada) e peso, supondo diversas formas funcionais, para entao associar esses parâmetros a determinadas variaveis sociodemograficas. Nao foram encontrados estudos precedentes com o objetivo de realizar essa analise no Brasil, sendo que com base na literatura revisada, pode-se perceber similaridades e divergencias. A analise por genero, estado civil, faixa etaria e renda mostra relativas similaridades com outros estudos em paises desenvolvidos e em desenvolvimento. Entretanto, o nivel educacional mostra resultados contrarios ao esperado e a analise por profissao chega a resultados inconclusivos.Palavras-chave: Financas comportamentais. Teoria do Prospecto. Funcao valor. Funcao peso. Brasil. Prospect Theory: determinant factors in risk preferences in Brazil Abstract: Risk preference is an important factor that influence a wide range of personal financial decisions (SNELBECKER; ROSZKOWSKI; CUTLER, 1990) and is defined as the maximum amount of uncertainty that someone is willing to accept when making a financial decision or the disposition of to be involved in behaviors whose results are uncertain with the possibility of having an identifiable negative result (IRWIN, 1993). In this context, the Prospect Theory emerges like a descriptive alternative model of choice under uncertainty. Given the increasing importance of the influence of behavioral aspects in the financial environment, this study sought to analyze the risk preferences in Brazil following the precepts of the Prospect Theory. To this end, with lottery questionnaires (used in the study by RIEGER; WANG; HENS, 2011), were estimated for a sample of students and professionals, parameters of value (with inclusion of the modified logarithmic function) and weight functions assuming various functional forms, and then associate these parameters to certain socio-demographic variables. No previous studies were found in order to perform this analysis in Brazil, and based on the literature reviewed, we could realize some similarities and differences. Analysis by gender, marital status, age and income shows similarities with other studies in developed and developing countries. However, the educational level shows results contrary to expected and the analysis by profession comes to inconclusive results.Keywords: Behavioral finance. Prospect Theory. Value function. Weight function. Brazil.

/pdf/teoria-do-prospecto-fatores-determinantes-nas-preferencias-4ufyl6plrw.pdf

Robert Eugene Lobel

Papers

Prospect theory: a parametric analysis of functional forms in brazil

Teoria do Prospecto: fatores determinantes nas preferências ao risco no Brasil