Prospect Theory and Risk Preferences of Oregon Seed Producers

Prospect theory relates risk preference classifications to gains and losses from a reference income level. This study applies prospect theory to reinterpret historical studies of risk preferences of Oregon grass seed growers. A significant relationship between changes in classifications of preferences and changes in income was found. Results indicated that those who lost income were concentrated in the category of changing to risk preferrers. Income changes calculated from crop combinations were also found to be correlated in a theoretically correct pattern with positive measures of risk from crop enterprises. The research therefore is consistent with further applications of prospect theory to farm management.