Attitudes Toward Risk: Experimental Measurement in Rural India

TLDR: In this article, a study was made to determine whether differences in behavior between farmers of different wealth levels are the consequence of different attitudes towards risk or of different constraint sets such as limitations on credit or on access to modern inputs.

Abstract: A study was made to determine whether differences in behavior between farmers of different wealth levels are the consequence of different attitudes towards risk or of different constraint sets such as limitations on credit or on access to modern inputs. Attitudes towards risk were measured in 240 households using two methods: an interview method eliciting certainty equivalents and an experimental gambling approach with real payoffs which, at their maximum, exceeded monthly incomes of unskilled laborers. The interview method is subject to interviewer bias and its results were totally inconsistent with the experimental measures of risk aversion. Experimental measures indicate that, at high payoff levels, virtually all individuals are moderately risk-averse with little variation according to personal characteristics. Wealth tends to reduce risk aversion slightly, but its effect is not statistically significant.