Abstract
Farm production often involves family-owned agribusinesses where decisions are made by households or individuals, not corporate managers. As these decisions have important economic, environmental, and social implications, decision-making processes must be understood to foster sustainable agricultural production. Decision experiments, involving lotteries, targeting farmers in the Argentine Pampas were used to estimate prospect theory (PT) parameters. Results suggest that decisions under risk are better represented by prospect theory than by expected utility (EU) theory: Decision makers treat gains and losses differently and use subjective probabilities of outcomes; they are quite loss averse and are more likely to overweigh probabilities of infrequent events, such as large droughts or floods. Statistical testing revealed heterogeneity in the risk tied to land tenure (land owners vs. renters) and agribusiness roles (farmers vs. technical advisors). Perceptions of risk, probability, and outcomes played a large role in the sustainability of production. Due to a strong desire to avoid losses, decision makers have a greater short term focus: Immediate economic outcomes are more salient, and environmental and social investments are framed as costs rather than long-term gains. This research can help design policies, programs, and tools that assist agribusinesses in managing better contradictions across the triple bottom line to ensure greater sustainability.
| Original language | English (US) |
|---|---|
| Article number | 2693 |
| Journal | Sustainability (Switzerland) |
| Volume | 10 |
| Issue number | 8 |
| DOIs | |
| State | Published - Aug 1 2018 |
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Keywords
- Agribusiness decision making
- Land tenure
- Prospect theory
- Risk preferences
- Sustainable agriculture
ASJC Scopus subject areas
- Geography, Planning and Development
- Renewable Energy, Sustainability and the Environment
- Management, Monitoring, Policy and Law
Cite this
Using insights from prospect theory to enhance sustainable decision making by agribusinesses in Argentina. / Gonzalez-Ramirez, Jimena; Arora, Poonam; Podesta, Guillermo P.
In: Sustainability (Switzerland), Vol. 10, No. 8, 2693, 01.08.2018.Research output: Contribution to journal › Article
}
TY - JOUR
T1 - Using insights from prospect theory to enhance sustainable decision making by agribusinesses in Argentina
AU - Gonzalez-Ramirez, Jimena
AU - Arora, Poonam
AU - Podesta, Guillermo P
PY - 2018/8/1
Y1 - 2018/8/1
N2 - Farm production often involves family-owned agribusinesses where decisions are made by households or individuals, not corporate managers. As these decisions have important economic, environmental, and social implications, decision-making processes must be understood to foster sustainable agricultural production. Decision experiments, involving lotteries, targeting farmers in the Argentine Pampas were used to estimate prospect theory (PT) parameters. Results suggest that decisions under risk are better represented by prospect theory than by expected utility (EU) theory: Decision makers treat gains and losses differently and use subjective probabilities of outcomes; they are quite loss averse and are more likely to overweigh probabilities of infrequent events, such as large droughts or floods. Statistical testing revealed heterogeneity in the risk tied to land tenure (land owners vs. renters) and agribusiness roles (farmers vs. technical advisors). Perceptions of risk, probability, and outcomes played a large role in the sustainability of production. Due to a strong desire to avoid losses, decision makers have a greater short term focus: Immediate economic outcomes are more salient, and environmental and social investments are framed as costs rather than long-term gains. This research can help design policies, programs, and tools that assist agribusinesses in managing better contradictions across the triple bottom line to ensure greater sustainability.
AB - Farm production often involves family-owned agribusinesses where decisions are made by households or individuals, not corporate managers. As these decisions have important economic, environmental, and social implications, decision-making processes must be understood to foster sustainable agricultural production. Decision experiments, involving lotteries, targeting farmers in the Argentine Pampas were used to estimate prospect theory (PT) parameters. Results suggest that decisions under risk are better represented by prospect theory than by expected utility (EU) theory: Decision makers treat gains and losses differently and use subjective probabilities of outcomes; they are quite loss averse and are more likely to overweigh probabilities of infrequent events, such as large droughts or floods. Statistical testing revealed heterogeneity in the risk tied to land tenure (land owners vs. renters) and agribusiness roles (farmers vs. technical advisors). Perceptions of risk, probability, and outcomes played a large role in the sustainability of production. Due to a strong desire to avoid losses, decision makers have a greater short term focus: Immediate economic outcomes are more salient, and environmental and social investments are framed as costs rather than long-term gains. This research can help design policies, programs, and tools that assist agribusinesses in managing better contradictions across the triple bottom line to ensure greater sustainability.
KW - Agribusiness decision making
KW - Land tenure
KW - Prospect theory
KW - Risk preferences
KW - Sustainable agriculture
UR - http://www.scopus.com/inward/record.url?scp=85051080816&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85051080816&partnerID=8YFLogxK
U2 - 10.3390/su10082693
DO - 10.3390/su10082693
M3 - Article
AN - SCOPUS:85051080816
VL - 10
JO - Sustainability
JF - Sustainability
SN - 2071-1050
IS - 8
M1 - 2693
ER -