Does Market Experience Attenuate Risk Aversion? Evidence from Landed Farm Households in Ethiopia

Mequanint B. Melesse*, Francesco Cecchi

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

17 Citations (Scopus)


Risk preferences are important drivers of many relevant economic decisions of farm households. High risk aversion is a well-known trigger of "poverty traps" for farm households in developing countries. This paper analyzes the effect of market experience on risk aversion for a relatively large sample of landed farm households characterized by historically low mobility in Ethiopia. We measure risk aversion using lab-in-field experimental data, and relate it to actual market experience of household heads. We use an instrumental variable approach to address the issue of endogeneity due to possible self-selection into trade. We find that market experience attenuates risk aversion--farm households with greater market experience are more risk tolerant. Results are robust to using several alternative specifications, controlling for internal mobility, out-migration and other potential unobservables, and for violations to rational choice. Overall, this study provides strong empirical evidence that risk preferences endogenously change as a result of market experience, and can help design policies aiming to increase the productivity and efficiency of farm households.

Original languageEnglish
Pages (from-to)447-466
JournalWorld Development
Publication statusPublished - 2017


  • Endogenous risk preferences
  • Ethiopia
  • Experimental economics
  • Market experience
  • Risk aversion


Dive into the research topics of 'Does Market Experience Attenuate Risk Aversion? Evidence from Landed Farm Households in Ethiopia'. Together they form a unique fingerprint.

Cite this