Risk preference and risk perception of apple producers in Germany – development of a measurement concept

Abstract

The impact of weather events and volatile prices render commercial apple production a risky business. Our research focuses on the risk behaviour of apple farmers in two distinct regions in Germany. Based on data on the risk preferences, risk perceptions and risk management choices collected from 134 apple farmers, we conduct a quantitative analysis of their risk behaviour. The analysis forms the basis for the development of a portfolio-based decision support tool that aids extension staff and practitioners in designing optimal farm programs. In this paper, we deal with risk preferences and risk perceptions among these farmers. A multiple price list technique with two different framings and a self-assessment via Likert scales considering different contexts are applied to test the hypothesis in our sample. Assessments of farmers' risk perception were collected directly through a two-phase question technique for different contexts. Our results suggest the existence of a stable underlying risk trait. However, different contexts lead to heterogeneous results for both self-assessed and experimentally elicited risk attitudes. We find that results of lottery experiments correspond well with the stated preferences in the domain of finance. Our observations indicate that the consideration of domains is of central importance in the analysis of risk attitudes and should not be ignored. Data from two different production areas allow for the detection of the effects of experience of downside events and risk perception.