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Measuring risk preferences in rural Ethiopia : risk tolerance and exogenous income proxies

Author

Listed:
  • Vieider, Ferdinand M.
  • Beyene, Abebe
  • Bluffstone, Randall
  • Dissanayake, Sahan
  • Gebreegziabher, Zenebe
  • Martinsson, Peter
  • Mekonnen, Alemu
Abstract
Risk-aversion has generally been found to decrease in income. This may lead one to expect that poor countries will be more risk-averse than rich countries. Recent comparative findings with students, however, suggest the opposite, giving rise to a risk-income paradox. This paper tests this paradox by measuring the risk preferences of more than 500 household heads spread over the highlands of Ethiopia and finds high degrees of risk tolerance. The paper also finds risk tolerance to increase in income proxies, thus completing the paradox. Using exogenous proxies, the paper concludes that part of the causality must run from income to risk tolerance. The findings suggest that risk preferences cannot be blamed for the failure to adopt new technologies. Alternative explanations are discussed.

Suggested Citation

  • Vieider, Ferdinand M. & Beyene, Abebe & Bluffstone, Randall & Dissanayake, Sahan & Gebreegziabher, Zenebe & Martinsson, Peter & Mekonnen, Alemu, 2014. "Measuring risk preferences in rural Ethiopia : risk tolerance and exogenous income proxies," Policy Research Working Paper Series 7137, The World Bank.
    • Handle: RePEc:wbk:wbrwps:7137
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    References listed on IDEAS

    as
    1. Andersson, Ola & Tyran, Jean-Robert & Wengström, Erik & Holm, Håkan J., 2013. "Risk Aversion Relates to Cognitive Ability: Fact or Fiction?," Working Paper Series 964, Research Institute of Industrial Economics.
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    Cited by:

    1. Pham, Huong Dien & Liebenehm,Sabine & Waibel, Hermann, 2017. "Experimentally validated general risk attitude among different ethnic groups in Vietnam," TVSEP Working Papers wp-004, Leibniz Universitaet Hannover, Institute for Environmental Economics and World Trade, Project TVSEP.
    2. Beyene,Abebe D. & Bluffstone,Randall & Gebreegziabher,Zenebe & Martinsson,Peter & Mekonnen,Alemu & Vieider,Ferdinand, 2015. "The improved biomass stove saves wood, but how often do people use it ? evidence from a randomized treatment trial in Ethiopia," Policy Research Working Paper Series 7297, The World Bank.

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    More about this item

    Keywords

    Statistical&Mathematical Sciences; Economic Theory&Research; Labor Policies; Insurance&Risk Mitigation; Hazard Risk Management;
    All these keywords.

    JEL classification:

    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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