Why Didn't I Get a Payout? Understanding Farmer Choices, Index Insurance, and Basis Risk

Index insurance, while heralded as a potential solution to alleviate poverty and food insecurity among agricultural households, has its own set of challenges, notably basis risk. Basis risk is the discrepancy between the insurance payout and losses incurred, posing a significant deterrent to the adoption of index insurance. This study investigates the effect of basis risk training on the uptake of rainfall index insurance among rural farmers in Senegal, employing an educational simulation game as a pedagogical tool. Our results suggest that a lack of transparency and a misunderstanding of basis risk contribute to low participation and a lack of trust in index insurance.