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The Accuracy Of Producers' Probability Beliefs: Evidence And Implications For Insurance Valuation

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  • Sherrick, Bruce J.

Abstract

The accuracy of producers' subjective probability beliefs is examined through a survey of large cash-grain farmers in Illinois. Findings reveal that their subjective probability beliefs about important weather variables are systematically mis-calibrated. The nature and extent of differences between subjective probability beliefs and probabilities based on long-term historic weather data are shown empirically, and through fitted calibration functions. The economic significance of inaccurate subjective probability beliefs is established in the context of insurance valuation. The results demonstrate that significant errors in producers' risk assessments and insurance valuation arise as a consequence of producers' systematically inaccurate probability beliefs.

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  • Sherrick, Bruce J., 2002. "The Accuracy Of Producers' Probability Beliefs: Evidence And Implications For Insurance Valuation," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 27(01), pages 1-17, July.
    • Handle: RePEc:ags:jlaare:31076
    DOI: 10.22004/ag.econ.31076
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    References listed on IDEAS

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    Cited by:

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    2. Agarwal, Sandip Kumar, 2017. "Subjective beliefs and decision making under uncertainty in the field," ISU General Staff Papers 201701010800006248, Iowa State University, Department of Economics.
    3. Umarov, Alisher & Sherrick, Bruce J., 2005. "Farmers' Subjective Yield Distributions: Calibration and Implications for Crop Insurance Valuation," 2005 Annual meeting, July 24-27, Providence, RI 19396, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    4. Bulut, Harun & Collins, Keith J., 2013. "Political Economy of Crop Insurance Risk Subsidies under Imperfect Information," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150577, Agricultural and Applied Economics Association.
    5. Agarwal, Sandip & Jacobs, Keri L. & Weninger, Quinn, 2016. "Elicitation of Subjective Beliefs: A Pilot study of farmers' nitrogen management decision-making in Central Iowa," ISU General Staff Papers 201601010800001005, Iowa State University, Department of Economics.
    6. Bulut, Harun, 2017. "Managing Catastrophic Risk in Agriculture through Ex Ante Subsidized Insurance or Ex Post Disaster Aid," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 42(3), September.
    7. Hong Fu & Yuehua Zhang & Yinuo An & Li Zhou & Yanling Peng & Rong Kong & Calum G. Turvey, 2022. "Subjective and objective risk perceptions and the willingness to pay for agricultural insurance: evidence from an in-the-field choice experiment in rural China," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 47(1), pages 98-121, March.

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