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Non-Expected Utility: What do the Anomalies Mean for Risk in Agriculture?

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A Comprehensive Assessment of the Role of Risk in U.S. Agriculture

Part of the book series: Natural Resource Management and Policy ((NRMP,volume 23))

Abstract

After more than a quarter century of analysis into its predictive value, the validity of the expected utility model (EU) is seriously called into question. These questions are particularly critical for agricultural economists since we have long relied on EU to assess behavior under the pervasive environment of risk in agricultural and natural resource issues. In this chapter, I will review some of the primary violations of EU, assess their implications, and consider various responses put forward in light of them. Questions addressed include:

  • What is the nature of behavior violating EU as commonly applied?

  • What do these anomalies tell us about modeling behavior under risk and what testable implications can be drawn from models incorporating them?

  • Can we still use EU for some risky choices in light of these anomalies; i.e., how robust are the anomalies to (1) the design of the risky questions, (2) real payoffs, and (3) experimental vs. non-experimental risky questions?

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Authors and Affiliations

  1. Montana State University, USA

    David E. Buschena

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  1. David E. Buschena
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Editors and Affiliations

  1. University of Maryland, College Park, USA

    Richard E. Just

  2. Brigham Young University, USA

    Rulon D. Pope

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Buschena, D.E. (2002). Non-Expected Utility: What do the Anomalies Mean for Risk in Agriculture?. In: Just, R.E., Pope, R.D. (eds) A Comprehensive Assessment of the Role of Risk in U.S. Agriculture. Natural Resource Management and Policy, vol 23. Springer, Boston, MA. https://doi.org/10.1007/978-1-4757-3583-3_2

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  • DOI: https://doi.org/10.1007/978-1-4757-3583-3_2

  • Publisher Name: Springer, Boston, MA

  • Print ISBN: 978-1-4419-4924-0

  • Online ISBN: 978-1-4757-3583-3

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