Risk attitudes and innovation in Dutch arable farming

Abstract

On-farm innovations have the potential to increase both agricultural productivity and income while mitigating environmental impacts. However, as adopting innovations can lead to risks, it is important to understand the role of farmers’ risk attitudes. We quantified Dutch arable farmers’ risk attitudes based on the cumulative prospect theory (CPT) and used the benefit of the doubt approach to obtain an innovation index based on expert elicitations and adopted innovations. Subsequently, we used a fractional response model to test our pre-registered hypothesis and investigate the association between the parameters of farmers’ risk attitude and farm-level innovation. We find no statistically significant association between CPT parameters and the innovation index. Our results therefore cast doubts on the potential of revealed risk preferences to understand real-world behaviour.