NonExpected Utility: What do the Anomalies Mean for Risk in Agriculture?
Chapter
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. nonexperimental risky questions?
Keywords
Expect Utility Theory Risky Choice Risky Decision Final Wealth Probability Weighting Function
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.
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