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Linking risk preferences and risk perceptions of climate change: A prospect theory approach
Author(s) -
Villacis Alexis H.,
Alwang Jeffrey R.,
Barrera Victor
Publication year - 2021
Publication title -
agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.29
H-Index - 82
eISSN - 1574-0862
pISSN - 0169-5150
DOI - 10.1111/agec.12659
Subject(s) - climate change , risk perception , risk aversion (psychology) , perception , prospect theory , economics , expected utility hypothesis , agriculture , distortion (music) , natural resource economics , public economics , environmental resource management , actuarial science , risk analysis (engineering) , business , psychology , microeconomics , financial economics , geography , computer science , ecology , archaeology , neuroscience , biology , amplifier , computer network , bandwidth (computing)
This article explores how farmer risk preferences are related to their perception of risk of climate change. We measure risk preferences and risk perceptions using a survey and a lab‐in‐the‐field experiment conducted with one of the most vulnerable groups to climate change in Latin America. We find that farmers that behave in accordance with the assumptions of Prospect Theory —a paradigm where risk preferences are characterized by risk aversion, loss aversion, and probability distortion—are more likely to perceive greater risks of climate change. Our results contribute to the understanding of farmer behavior in developing countries. Moreover, since perception of a risk is a necessary prerequisite for deciding on actions to adapt to climate risk, the results have important policy implications for the development and adoption of new technologies aimed at mitigating the effects of climate change (climate‐smart agricultural technologies).