Higher-order risk preferences and livelihood choices of farmers from West Bengal, India

This paper investigates the relationship between livelihood diversification strategies and risk preferences, including risk aversion, loss aversion, and higher-order risk preferences of farmers from West Bengal, India, using multivariate regression (mvreg) and multivariate probit (mvp) models. We use data from lottery choice experiments and household surveys to estimate higher-order risk preferences and analyse the relationship between risk preferences and livelihood diversification (N = 191). We found that many sampled households take up other supplementary income-generating activities besides agriculture and allied activities to spread their risk. Farmers who are risk averse are more likely to receive income from remittances and entrepreneurial activities. Higher prudence is linked with higher income contribution from agricultural activities, but a lower income contribution from migration-related activities and non-migratory casual labour. Temperate individuals are more likely to generate a higher share of income from agriculture-related activities and non-migratory casual labour, but a lower share from remittances. Higher-order risk preferences—prudence and temperance—affect livelihood diversification significantly.