Choice of utility function form: its effect on classification of risk preferences and the prediction of farmer decisions
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In applications of expected utility analysis, researchers are confronted with a choice
among several utility functional forms. Subjective utility values and probability distributions
for price and yield were elicited from Sri Lankan producers of minor export crops.
Exponential quadratic and cubic utility functions were estimated. The choice of functional
form was found to affect both the classification of risk attitudes and the prediction of
harvesting strategy. The exponential function was the best predictor of harvesting strategy
because it was the best predictor of mature harvesting. All three functions were equally
poor predictors of premature harvesting.