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Practical Application and Discernability of Risky Choice Models

About: The article was published on 2009-01-01 and is currently open access. It has received 4 citations till now.

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Citations
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Journal ArticleDOI
TL;DR: The importance of risk preferences in agricultural production has long been identified as an important and preeminent issue of policy relevance as discussed by the authors, and recent developments in the study of production risk have called into question much of the core of risk production research.
Abstract: The importance of risk preferences in agricultural production has long been identified as an important and preeminent issue of policy relevance. Recent developments in the study of production risk have called into question much of the core of risk production research. This article provides an overview of the prominent literature attempting to quantify the impact of risk preferences on production and a discussion of the recently discovered challenges. These challenges are typified by (a) an inability to discern risk preferences, (b) an inability to discern the factors that relate to risk preferences, (c) evidence that prior estimation has severe problems, and (d) a general failure of current models to address the important policy or behavioral issues. Although some of these challenges may appear at first blush to be insurmountable, we suggest a new agenda for risk research in production that directly addresses each of these issues.

22 citations

Dissertation
09 Sep 2015
Abstract: Cette these analyse les enjeux du developpement economique lies aux dynamiques des cours des matieres premieres en general et ceux du coton en particulier. Traditionnellement, les travaux s’inscrivant dans une optique de long terme questionnent la pertinence des specialisations primaires des PMA. A moyen terme l’interet porte davantage sur l’instabilite dont les consequences sont d’autant plus importantes que la dependance des pays a l’exportation de tels produits est forte. Les enjeux s’articulent alors autour des modalites de regulation des marches, du choix d'outils (publics ou marchands) pour la gestion des incertitudes, le tout dependant de l’apprehension de l’instabilite comme un phenomene endogene ou exogene. Dans un contexte nouveau marque par l’affirmation d’oligopoles de firmes, la segmentation du processus productif mondial, et la financiarisation des marches de matieres premieres, nous proposons un cadre analytique permettant d’aborder differemment ces problematiques. Nos travaux montrent d’abord comment les approches du type chaines globales de valeur peuvent etre mobilisees pour mieux orienter les strategies commerciales / industrielles des PMA. S’appuyant sur la notion de rationalite limitee dans le cadre de modeles de comportements heterogenes, ils prouvent ensuite l’existence d’une forte composante endogene dans l’instabilite et par la meme, l'inefficacite des seuls outils marchands. Au final, pour les pays africains producteurs de coton, il apparait qu’il reste possible de mettre ce produit au service d’une strategie globale de developpement. Cela passe par le recours a des mecanismes hybrides de gestion de l’instabilite, combine au renforcement des dynamiques de cooperation transfrontalieres en vue d’une structuration de chaines regionales de valeur.

11 citations

DOI
27 Nov 2009
TL;DR: In this article, the impact of agricultural policy on water use and farms' incomes in the northeast of the Syrian Arab Republic was investigated. But the authors focused on the three governorates of Deir-Ezzour (DEG), Al-Rakka (RAK), and Al-Hassakeh (HAG), and the results showed that the negative impact of the current policy on the water balance is evident in the area of Al-Khabour basin, located almost entirely in HAG.
Abstract: This thesis aims at measuring the impact of agricultural policy on water use and farms’ incomes in the northeast of the Syrian Arab Republic. The scope of the research is confined to the three governorates of Deir-Ezzour (DEG), Al-Rakka (RAK), and Al-Hassakeh (HAG). The choice of these governorates, that together form the Northeast of Syria, is due to their heavy reliance on policy regulated crops, which makes them relatively more sensitive to any policy reform. Moreover, the negative impact of the current policy on water balance is evident in the Northeast, especially in the area of Al-Khabour basin, located almost entirely in HAG. In the thesis, irrigated agriculture of the Northeast of Syria has been modelled by a set of representative farms, using the General Algebraic Modelling System (GAMS). The representative farms’ programming models are calibrated on data on observed cropping patterns and water use of 2005. Then, the policy reforms that have occurred after 2005 are considered in the models by changing the values of the relevant policy parameters and new baseline results obtained, inclusive of the most recent implemented reforms. The comparison between the baseline results of 2005 and the post-reform baseline results show that the recent reform is expected to have a limited impact on water use and farm income. Predicted changes in water use are less than +5% on average, over the entire region, although they vary across the three governorates of the region, with negative change in Al-Hassakeh, and positive in Al-Rakka and Deir-Ezzour. On the other hand, changes in income levels and stability are more noticeable in the three governorates and are always positive. The changes in average income levels range from +15% in Deir-Ezzour to +3% in Al-Hassakeh. The impact on the stability of income is of the same magnitude in percent terms. It is of interest to note that the impact of the recent policy reforms, due to the stabilization of maize price, is greater on income stability than on average income levels in the three governorates. The next analysis has involved simulation of alternative policy scenarios, including introduction of modern irrigation technology, reform in the farm credit system, and stabilization of alternative crops’ prices. The simulations reveal interesting policy implications. They illustrate that adoption of modern irrigation techniques, even by all farms in the region, would not solve the water scarcity problem in Al-Khabour basin where there will still be a noticeable deficit. This is due to the still low efficiency of modern irrigation schemes in the current condition of the region, but also because our model predicts that water saved thanks to the adoption of modern irrigation schemes will allow expansion of irrigated land. In addition, the results show that decoupling access to official credit from strategic crops would have negligible effects on cropping patterns and, consequently, water use. Similar results come out if the subsidy currently linked to cotton irrigated from private wells would be decoupled. Of the various possible simulated policies, stabilizing cumin price would have the largest positive impact on water consumption, because of expanding cumin cultivation, which is a crop with irrigation requirements, at the expense of wheat and other winter crops. The thesis adds to the evidence that price policy is potentially the instrument that affects farmers’ decision the most. If effective in stabilizing price for water saving crops, this may be an important tool to combine farm welfare improvement with increased sustainability in water use.

3 citations


Cites background from "Practical Application and Discernab..."

  • ...In addition, Just & Just (2009) demonstrate that the EUT hypothesis cannot be rejected because perceptions and preferences, which both affect behaviour under risk, cannot be measured separately....

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References
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Journal ArticleDOI
TL;DR: A review of recent developments in the economic theory of individual decision making under risk can be found in this article, where the authors assess alternative models in terms of empirical success and theoretical usefulness.
Abstract: This article reviews recent developments in the economic theory of individual decision making under risk. Since the 1950s it has been known that individual choices violate the standard model of expected utility in predictable ways. Considerable research effort has now been devoted to the project of developing a superior descriptive model. Following an overview of non-expected utility theories which distinguishes between "conventional" and "non-conventional" approaches, the paper seeks to assess these alternative models in terms of empirical success (using laboratory and field data) and theoretical usefulness. The closing sections reflect on some new directions emerging in this literature.

1,905 citations

Book ChapterDOI
01 Jun 1981
TL;DR: In this paper, a review of the literature concerning calibration of probabilistic assessments is presented, where the authors identify two kinds of "goodness" in probability assessments: normative goodness, which reflects the degree to which assessments express the assessor's true beliefs and conform to the axioms of probability theory, and substantive goodness, reflecting the amount of knowledge of the topic area contained in the assessments.
Abstract: From the subjectivist point of view (de Finetti, 1937/1964), a probability is a degree of belief in a proposition. It expresses a purely internal state; there is no “right,” “correct,” or “objective” probability residing somewhere “in reality” against which one's degree of belief can be compared. In many circumstances, however, it may become possible to verify the truth or falsity of the proposition to which a probability was attached. Today, one assesses the probability of the proposition “it will rain tomorrow.” Tomorrow, one looks at the rain gauge to see whether or not it has rained. When possible, such verification can be used to determine the adequacy of probability assessments. Winkler and Murphy (1968b) have identified two kinds of “goodness” in probability assessments: normative goodness, which reflects the degree to which assessments express the assessor's true beliefs and conform to the axioms of probability theory, and substantive goodness, which reflects the amount of knowledge of the topic area contained in the assessments. This chapter reviews the literature concerning yet another aspect of goodness, called calibration. If a person assesses the probability of a proposition being true as .7 and later finds that the proposition is false, that in itself does not invalidate the assessment. However, if a judge assigns .7 to 10,000 independent propositions, only 25 of which subsequently are found to be true, there is something wrong with these assessments.

1,829 citations

Journal ArticleDOI
TL;DR: A theory of belief updating that explicitly accounts for order-effect phenomena as arising from the interaction of information-processing strategies and task characteristics is presented and shown both to account for much existing data and to make novel predictions for combinations of task characteristics where current data are sparse.

1,545 citations


"Practical Application and Discernab..." refers background or methods in this paper

  • ..., Jullien and Salanie 2000). These two research methodologies are similar to the general literature employing EU as a decision model. For example, Chavas and Holt (1996) assume specific parametric forms for risk preferences and perceptions of the consequences of risky decisions, and then estimate the associated parameters to explain observed behavior....

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  • ...However, time-based effects such as recency or primacy (Hogarth and Einhorn 1992) at least seem to establish that misperceptions play some role—given that the order of observation does not affect preferences....

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Journal ArticleDOI
TL;DR: In this paper, subjects in three experiments chose their preferred bet from pairs of bets, and later bid for each bet separately, in each pair, one bet had a higher probability of winning (P bet); the other offered more to win (S bet).
Abstract: : Subjects in 3 experiments chose their preferred bet from pairs of bets, and later bid for each bet separately. In each pair, one bet had a higher probability of winning (P bet); the other offered more to win (S bet). Bidding method (selling vs. buying) and payoff method (real-play vs. hourly wage) were varied. Results showed that when the P bet was chosen, the $ bet often received a higher bid. These inconsistencies are incompatible with risky decision models, but can be understood via information-processing considerations. (Author)

1,514 citations


"Practical Application and Discernab..." refers background or methods in this paper

  • ...Other models are based on similarity (e.g., Rubinstein 1988) or ad hoc properties of prospects (e.g., Lichtenstein and Slovic 1971)....

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  • ...One approach cleverly manipulates the probability distributions to test for violations of models (e.g., MacCrimmon and Larsson 1979; Lichtenstein and Slovic 1971)....

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Journal ArticleDOI
TL;DR: The authors show that initial valuations of familiar products and simple hedonic experiences are strongly influenced by arbitrary "anchors" (sometimes derived from a person's social security number) and that subsequent valuations are also coherent with respect to salient differences in perceived quality or quantity of these products and experiences.
Abstract: In six experiments we show that initial valuations of familiar products and simple hedonic experiences are strongly influenced by arbitrary “anchors” (sometimes derived from a person’s social security number). Because subsequent valuations are also coherent with respect to salient differences in perceived quality or quantity of these products and experiences, the entire pattern of valuations can easily create an illusion of order, as if it is being generated by stable underlying preferences. The experiments show that this combination of coherent arbitrariness (1) cannot be interpreted as a rational response to information, (2) does not decrease as a result of experience with a good, (3) is not necessarily reduced by market forces, and (4) is not unique to cash prices. The results imply that demand curves estimated from market data need not reveal true consumer preferences, in any normatively significant sense of the term.

1,381 citations


"Practical Application and Discernab..." refers background in this paper

  • ...Replicable anomalies have been broadly regarded as an invalidation of both standard expected utility theory and of welfare economics (Ariely, Lowenstein, and Prelec 2003)....

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