Lab and life: Does risky choice behaviour observed in experiments reflect that in the real world?

• Published in: Journal of economic behavior & organization Vol. 128; pp. 134 - 148
• Main Authors: Verschoor, Arjan, D’Exelle, Ben, Perez-Viana, Borja
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01-08-2016; Elsevier Sequoia S.A
• Subjects: Agricultural economics; Agricultural investment; Behavior; Behavioral decision theory; Cash crops; Choice bracketing; Correlation analysis; Crops; Experimental methodology; Experiments; External validity; Farming; Profits; Risk assessment; Risk preferences; Risk taking; Rural communities; Studies; Uganda; O13; Q12; D03; External validity; C18; Risk preferences; C93; D81; Experimental methodology; Agricultural investment; Choice bracketing
• ISSN: 0167-2681; 1879-1751
• DOI: 10.1016/j.jebo.2016.05.009

•In a sample of farmers, we compare investment behavior in experiments with that in real life.•Investment in the experiments is similar to some but not all real-life investment.•Narrow bracketing is a plausible explanation for the discrepancy.
Risk preferences play a crucial role in a great variety of economic decisions. Measuring risk preferences reliably is therefore an important challenge. In this paper we ask the question whether risk preferences observed in economic experiments reflect real-life risky choice behaviour. We investigate in a sample representative for a rural region of eastern Uganda whether pursuing farming strategies with both a higher expected profit and greater variance of profits is associated with willingness to take risks in an experiment. Controlling for other determinants of risk-taking in agriculture, we find that risky choice behaviour in the experiment is correlated with risky choice behaviour in real life in one domain, i.e. the purchase of fertiliser, but not in other domains, i.e. the growing of cash crops and market-orientation more broadly. Our findings suggest that economic experiments may be good at capturing real-world risky choice behaviour that is narrowly bracketed.