Measuring Risk Preferences in Rural Ethiopia

Download or read book Measuring Risk Preferences in Rural Ethiopia written by Ferdinand M. Vieider and published by . This book was released on 2017 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.