THE ACCURACY OF PRODUCERS' PROBABILITY BELIEFS: EVIDENCE AND IMPLICATIONS FOR INSURANCE VALUATION

The accuracy of producers' subjective probability beliefs is examined through a survey of large cash-grain farmers in Illinois. Findings reveal that their subjective probability beliefs about important weather variables are systematically mis-calibrated. The nature and extent of differences between subjective probability beliefs and probabilities based on long-term historic weather data are shown empirically, and through fitted calibration functions. The economic significance of inaccurate subjective probability beliefs is established in the context of insurance valuation. The results demonstrate that significant errors in producers' risk assessments and insurance valuation arise as a consequence of producersÂ’' systematically inaccurate probability beliefs.


Issue Date:
2002-07
Publication Type:
Journal Article
PURL Identifier:
http://purl.umn.edu/31076
Published in:
Journal of Agricultural and Resource Economics, Volume 27, Number 1
Page range:
77-93
Total Pages:
17




 Record created 2017-04-01, last modified 2017-08-24

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