Risk has long been recognised as an important feature of the environment facing farmers. In recent years the von Neumann-Morgenstern expected utility theory has been used to analyse decision making under risk. However, many people behave in a manner inconsistent with the expected utility theory. One widely suggested explanation is based on subjective probability distortion. A number of attempts to incorporate this phenomenon into utility theories have been made. In this paper, the problems of analysing subjective probability distortion are discussed. Evidence from a survey of farmers' risk attitudes undertaken in conjunction with the 1977 BAE Australian Agricultural and Grazing Industries Survey is analysed in the light of this discussion.

Farmers' risk attitudes are inconsistent with expected utility theory, highlighting the need for further research on subjective probability distortion.

Risk Perception And The Analysis Of Risk Attitudes

Key Takeaway: Farmers' risk attitudes are inconsistent with expected utility theory, highlighting the need for further research on subjective probability distortion.