The accuracy of producers' probability beliefs: Evidence and implications for insurance valuation

Research output: Contribution to journalArticlepeer-review

Abstract

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 miscalibrated. 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 producers' systematically inaccurate probability beliefs.

Original languageEnglish (US)
Pages (from-to)77-93
Number of pages17
JournalJournal of Agricultural and Resource Economics
Volume27
Issue number1
StatePublished - Jul 2002

Keywords

  • Precipitation insurance valuation
  • Probability beliefs
  • Risk assessment

ASJC Scopus subject areas

  • Aquatic Science

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