Ambiguity Aversion As A Predictor Of Technology Choice: Experimental Evidence From Peru

The lack of adoption of new farming technologies despite known benefits is a well-documented phenomenon in development economics. In addition to a number of market constraints, risk aversion predominates the discussion of behavioral determinants of technology adoption. We hypothesize that ambiguity aversion may also be a determinant, since farmers may have less information about the distribution of yield outcomes from new technologies compared with traditional technologies. We test this hypothesis with a laboratory experiment in the field in which we measure risk and ambiguity preferences. We combine our experiment with a survey in which we collect information on farm decisions and identify market constraints. We find that ambiguity aversion does indeed predict actual technology choices on the farm.

Policy implications

Helping farmers overcome ambiguity around outcomes of using innovative techniques can make them more likely to experiment with new methods.

Additional information

Hypotheses/research question

Hypothesis 1 (risk preferences): Technology adoption is decreasing in risk aversion. Hypothesis 2 (ambiguity preferences): Technology adoption is decreasing in ambiguity aversion. Hypothesis 3 (non-rational behaviour): Technology adoption is decreasing in non-rational behaviour. Hypothesis 4 (non-behavioural hypotheses): the following summarises some of the main non-behavioural determinants of technology adoption: - Income positively affects a farmer's decision to adopt a new technology. Conversely poverty will reduce the probability that the farmer adopts. - Poor farmers who face a borrowing constraint are less likely to adopt a new technology than farmers who can draw from their savings or who have access to credit. - Learning by doing is an important determinant of technology adoption. More educated and more experienced farmers are thus more likely to adopt a new technology. - Farmers are more likely to adopt a new variety if their neighbours have already adopted it themselves.

Study design

Laboratory experiment

Farmers in rural communities in Central Costa and Central Sierra in Peru. Participants had to have basic literacy and numeracy skills, and be at least 18 years old. As community leaders were enlisted to help recruit subjects, the sample is unlikely to be completely random but should still be representatives of the communities.

Cost benefit ratio

Not applicable.

Rounds of data collection

17: Baseline (census data) + 3 experimental sessions each comprised of 5 rounds of data collection about gambling decisions + Endline socio-economic survey.

Baseline data collection and method

Peruvian Census containing extensive demographic information on the rural farmers who were identified as subjects.

Data collection method and data collected

Experiments presented subjects with payoffs corresponding to pre-defined levels of risk and ambiguity over the outcomes' probability distribution, and gambling decisions were recorded each round. Session one measured risk aversion, session two measured ambiguity aversion, and session three measured rationality. An oral endline survey was administered after the experiments and collected data on socio-economics, including technology choice on subjects' actual farms.

Unit of analysis

subject/individual choices

Stratification

Reference

Warnick, J. C. E., Escobal, J., & Laszlo, S. C. (2011). Ambiguity aversion and portfolio choice in small-scale Peruvian farming. The BE Journal of Economic Analysis & Policy, 11(1).

Ambiguity Aversion As A Predictor Of Technology Choice: Experimental Evidence From Peru

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