Exploring Higher Order Risk Preferences of Farmers in a Water-Scarce Region: Evidence from a Field Experiment in West Bengal, India

We estimate higher order risk preferences of farmers from a water scarce region in West Bengal, India. We then examine correlations across risk aversion, prudence and temperance attitudes of farmers, and explore associations of these preferences with household characteristics. Our experimental findings indicate risk seeking behaviour of farmers. We find that farmers took more prudent and temperate decisions. Risk aversion and prudence have a significant negative correlation, whereas prudence and temperance have a significant positive correlation. Individual characteristics such as age, education, and entrepreneurship, income and value of assets are also correlated with various risk preferences. Increased stated drought resilience of farmers is positively correlated with prudence. Farmers affected by water scarcity in the Kharif make imprudent choices. Farmers with higher cropping intensities exhibit high levels of prudence and temperance. These findings have important theoretical and policy implications which we discuss in the paper.