Using Stated Preferences and Beliefs to Identify the Impact of Risk on Poor Households

Whilst the importance of uncertainty in shaping economic behaviour of poor households is widely acknowledged, empirically identifying the impact of risk is difficult. By using data on risk preferences and perceptions of risk collected through hypothetical questions in combination with more traditional measures of a household's ability to deal with risk, this article identifies the impact of risk on production decisions. It shows both that data on stated preferences and beliefs can be usefully utilised to explain household behaviour, and that risk has a significant impact on the production decisions of poor households.