Going beyond perfect rationality

drought risk, economic choices and the influence of social networks

Journal article (2016)

Authors

Rianne van Duinen University of Twente, Deltares
T. Filatova University of Twente, Deltares
Wander Jager University Medical Center Groningen
Anne van der Veen University of Twente
Affiliation
External organisation
More Info
expand_more

Published Date

2016

Language

English

Reuse Rights

Other than for strictly personal use, it is not permitted to download, forward or distribute the text or part of it, without the consent of the author(s) and/or copyright holder(s), unless the work is under an open content license such as Creative Commons.

Affiliation

External organisation

Abstract

Theoretical and experimental studies from psychological and behavioral sciences show that heuristics and social networks play an important role in decision-making under risk. The goal of this paper is to investigate the effects of empirical social networks and different behavioral rules on farmers’ irrigation adoption under drought risk and its impacts on several macroeconomic indicators such as the rate of adaptation, water demand and regional agricultural income. We present an application of a spatial economic ABM which is able to simulate the effect of droughts on crop production, farm income and farm decision-making. The agents’ population is parameterized using survey data, including data on social networks. Four experiments are conducted combining two climate scenarios with two behavioral scenarios (maximizers vs. heuristic-based agents). The results show that the adoption process follows a different path in the scenario with heuristic-based farmers. The adoption of irrigation is slower in the short run due to reliance on information from social networks and farmers’ uncertainty regarding drought events. This results in agricultural income loss and a lower water demand in the short run compared to the scenario with maximizing agents.