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Measuring Risk Preferences in Rural Ethiopia

Journal article
Authors F. M. Vieider
A. Beyene
R. Bluffstone
S. Dissanayake
Z. Gebreegziabher
Peter Martinsson
A. Mekonnen
Published in Economic Development and Cultural Change
Volume 66
Issue 3
Pages 417-446
ISSN 0013-0079
Publication year 2018
Published at Department of Economics
Pages 417-446
Language en
Keywords probability weighting function, parameter-free elicitation, prospect-theory, gender-differences, attitudes, utility, uncertainty, aversion, poverty, India
Subject categories Economics


Risk aversion is generally found to decrease in income. Between countries, comparative findings with students suggest that people in poorer countries are more risk tolerant, potentially giving rise to a risk-income paradox. We test the robustness of this finding by measuring the risk preferences of 500 household heads in the highlands of Ethiopia. We find high degrees of risk tolerance, consistent with the evidence obtained for students using the same tasks. The level of risk tolerance is higher than for student samples in most Western and middle-income countries. We also find risk tolerance to increase in income proxies within our sample, thus completing the paradox.

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