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Licensed Unlicensed Requires Authentication Published by De Gruyter November 4, 2011

Ambiguity Aversion and Portfolio Choice in Small-Scale Peruvian Farming

James C. Engle Warnick, Javier Escobal and Sonia C. Laszlo

Abstract

While the effect of risk aversion on farmers' decision-making has long been documented, far less is known about the effect of ambiguity aversion. We argue that ambiguity aversion is just as relevant to their decision-making process because they are uncertain about the yield distributions generated by new technologies. By experimentally measuring risk and ambiguity aversion in rural Peru, we provide new evidence on the role of ambiguity aversion on farm decisions in developing countries: ambiguity aversion, not risk aversion, reduces the likelihood that farmers plant more than one variety of their main crop.

Published Online: 2011-11-4

©2012 Walter de Gruyter GmbH & Co. KG, Berlin/Boston