Are Farmers as Risk-averse as They Think They Are?

Abstract

Studies on the acceptance of innovation often identify risk preference to be a decisive factor for the adoption of sustainable practices. While in finance and management research, lottery tasks are mostly used to measure risk aversion, behavioural studies usually use measures of risk tolerance and risk perception derived from explicit self-assessment questions. We empirically test the influence of three different risk measures on farmers’ acceptance of a sustainability standard and the amount of investment made. The results of our analysis indicate that the results of lottery tasks are consistent with the risk-seeking behaviour of e.g. of investment decisions made, whereas the evaluation questions are more likely to capture other aspects like farmers' expectations of the innovation itself. The results suggest that we need to intensively investigate farmers' expectations of the single innovations in behavioural economic studies to distinguish more precisely between actual risk aversion or tolerance and a negative or positive opinion of the innovation.