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Choice Under Uncertainty in Developing Countries

Author

Listed:
  • Glenn Harrison

    (Department of Economics, College of Business Administration, University of Central Florida)

  • Steven Humphrey

    (School of Economics, University of Nottingham)

  • Arjan Verschoor

    (School of Development Studies, University of East Anglia)

Abstract

We review experimental evidence collected from risky choice experiments using poor subjects in Ethiopia, India and Uganda. Using these data we estimate that just over 50% of our sample behaves in accordance with expected utility theory and that the rest subjectively weight probability according to prospect theory. Our results show that inferences about risk aversion are robust to whichever model we adopt when we estimate each model separately. However, when we allow both models to explain portions of the data simultaneously, we infer risk aversion for subjects behaving according to expected utility theory and risk seeking behavior for subjects behaving according to prospect theory. We conclude that the current practice of designing policies under the assumption that one or other explains all behavior is fundamentally flawed.

Suggested Citation

  • Glenn Harrison & Steven Humphrey & Arjan Verschoor, 2005. "Choice Under Uncertainty in Developing Countries," Discussion Papers 2005-18, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    • Handle: RePEc:not:notcdx:2005-18
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    File URL: https://www.nottingham.ac.uk/cedex/documents/papers/2005-18.pdf
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    Citations

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    Cited by:

    1. Juan Camilo Cardenas & Jeffrey Carpenter, 2008. "Behavioural Development Economics: Lessons from Field Labs in the Developing World," Journal of Development Studies, Taylor & Francis Journals, vol. 44(3), pages 311-338.
    2. Farah Said & Uzma Afzal & Ginger Turner, 2014. "Attitudes Towards Risk in the Wake of a Rare Event: Evidence from Pakistan," CREB Working papers 2-2014, Centre for Research in Economics and Business, The Lahore School of Economics, revised 2014.
    3. Moya, Andrés, 2018. "Violence, psychological trauma, and risk attitudes: Evidence from victims of violence in Colombia," Journal of Development Economics, Elsevier, vol. 131(C), pages 15-27.
    4. Maarten Voors & Eleonora Nillesen & Philip Verwimp & Erwin Bulte & Robert Lensink & Daan van Soest, 2010. "Does Conflict affect Preferences? Results from Field Experiments in Burundi," HiCN Working Papers 71, Households in Conflict Network.
    5. Mohammad Sepahvand, 2022. "Agricultural Productivity in Burkina Faso: The Role of Gender and Risk Attitudes," Working Papers ECARES 2022-32, ULB -- Universite Libre de Bruxelles.
    6. Mohammad H. Sepahvand & Roujman Shahbazian, 2021. "Sibling correlation in risk attitudes: evidence from Burkina Faso," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 19(1), pages 45-72, March.
    7. Sepahvand, Mohammad H, 2019. "Agricultural productivity in Burkina Faso: The role of gender andrisk attitudes," Working Paper Series 2019:3, Uppsala University, Department of Economics.
    8. Abdelkrim Araar & Yesuf Mohammednur Awel & Jonse Bane Boka & Hiywot Menker & Ajebush Shafi & Eleni Abraham Yitbarek & Mulatu Zerihun, 2019. "Entrepreneurs’ Attitudes Toward Risk in Micro and Small Enterprises: Evidence from Urban Ethiopia," Working Papers PMMA 2019-05, PEP-PMMA.
    9. Jonathan Gheyssens & Isabel Günther, 2012. "Risk Experiments in Gains and Losses: A Case Study for Benin," WIDER Working Paper Series wp-2012-038, World Institute for Development Economic Research (UNU-WIDER).
    10. Omotuyole Isiaka Ambali & Francisco Jose Areal & Nikolaos Georgantzis, 2021. "On Spatially Dependent Risk Preferences: The Case of Nigerian Farmers," Sustainability, MDPI, vol. 13(11), pages 1-16, May.
    11. Gheyssens, Jonathan & Günther, Isabel, 2012. "Risk Experiments in Gains and Losses: A Case Study for Benin," WIDER Working Paper Series 038, World Institute for Development Economic Research (UNU-WIDER).

    More about this item

    Keywords

    choice under uncertainty; field experiments; developing countries;
    All these keywords.

    JEL classification:

    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments

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