Digging into background risk: Experiments with farmers and students

David H. Herberich, John A. List

Research output: Contribution to journalArticleResearchpeer-review

21 Citations (Scopus)

Abstract

The subpopulation of farmers is of interest because the added background risk present in the agricultural industry could lead to higher levels of risk tolerance than other subpopulations, either through sorting or experience over time. In addition to the background risks that farmers face in their chosen profession, the decision to utilize a carbon market is fraught with background risk, such as the expected price of carbon and the need to satisfy requirements of the trading board, such as multiple-year carbon sequestration. The results reported here are inconclusive but are suggestive that farmers are more risk averse than students. Further, there is some evidence that the bags-of-coins instrument affects risk preferences similarly to HLT. Rather than affecting risk preferences directly, background risk may reflect an aversion or uncertainty due to the ambiguity surrounding the risky decision.

Original languageEnglish
Pages (from-to)457-463
Number of pages7
JournalAmerican Journal of Agricultural Economics
Volume94
Issue number2
DOIs
Publication statusPublished - 1 Jan 2012
Externally publishedYes

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