The impact of farmers' risk preferences on the design of an individual yield crop insurance
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Kahneman and Tversky's Cumulative Prospect Theory (CPT) has proved to be better suited
for representing risk preferences than von Neumann and Morgenstern's Expected Utility
Theory (EUT). We argue that neglecting this may explain to some extent why farmers do not
contract crop insurance as much as they are expected to. We model the decision to contract an
individual yield crop insurance for a sample of 186 French farmers. We show that 21% of the
farmers who would be expected to contract assuming that their preferences are EUT, would
actually not do so if their true preferences were in fact CPT.