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How Bayesian Are Farmers When Making Climate Adaptation Decisions? A Computer Laboratory Experiment for Parameterising Models of Expectation Formation

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  • Marius Eisele
  • Christian Troost
  • Thomas Berger

Abstract

As the consequences of climate change for agricultural production slowly unfold at the local level (sometimes with contradicting signals), farmers’ information processing and decision making become more relevant for policy analysis and modelling. The major challenge is to reveal patterns in the way farmers form expectations about future production outcomes and to encode these findings into models of heterogeneous expectation formation. We developed and tested a payout‐motivated field experiment to observe farmer decision‐making under climate change and to examine how they form their expectations in a recursive‐dynamic context. Participants were exposed to ambiguity and acquired incremental evidence about the true distribution of possible climate outcomes through repeated random draws. Simulation models used in agricultural and environmental research usually implement simple forms of adaptive agent expectation or completely neglect this issue by assuming perfect foresight or constant expectations. Our computer laboratory experiments with blue‐ and white‐collar farmers from Southwest Germany (n = 97) suggest that expectation behaviour of a large share of farmers can be well replicated with Bayesian types of expectation models.

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  • Marius Eisele & Christian Troost & Thomas Berger, 2021. "How Bayesian Are Farmers When Making Climate Adaptation Decisions? A Computer Laboratory Experiment for Parameterising Models of Expectation Formation," Journal of Agricultural Economics, Wiley Blackwell, vol. 72(3), pages 805-828, September.
    • Handle: RePEc:bla:jageco:v:72:y:2021:i:3:p:805-828
    DOI: 10.1111/1477-9552.12425
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    2. Christoph Duden & Oliver Mußhoff & Frank Offermann, 2023. "Dealing with low‐probability shocks: The role of selected heuristics in farmers’ risk management decisions," Agricultural Economics, International Association of Agricultural Economists, vol. 54(3), pages 382-399, May.
    3. Amare, Dagninet & Darr, Dietrich, 2024. "Holistic analysis of factors influencing the adoption of agroforestry to foster forest sector based climate solutions," Forest Policy and Economics, Elsevier, vol. 164(C).
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    5. Hanna Freudenreich & Sindu W. Kebede, 2022. "Experience of shocks, household wealth and expectation formation: Evidence from smallholder farmers in Kenya," Agricultural Economics, International Association of Agricultural Economists, vol. 53(5), pages 756-774, September.

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