Anandi Mani

(Oxford University)

will give a presentation on

Congnitive Droughts

Abstract:

This paper tests whether worryingabout rainfall risk impairsfarmers’ decision-making, through worse cognition. Behavioraltheories predict that worries could impose a psychological tax on farmers, reducing the quality of their decisionsand, in turn,leading to material consequences at all times and across all states of nature –even when negative rainfall shocks do not materialize down the line. Using a novel technology to run lab experiments in the field, we combine survey experiments and recent rainfall shocks to estimate the effects of worryingabout rainfall risk on farmers’ cognition.We find that worries about rainfall increase farmers’ cognitive load and their susceptibility to a variety ofbehavioral biases. In theory, insurance could mitigatethose effects by alleviating the material consequences of rainfall risk. To test this hypothesis, we randomly assignoffers of an index insurance product, and find that it does not affect farmers’ worries about rainfall, cognitive load,or susceptibility to biases. These resultssuggest that farmers’ anxiety might berelatively difficult to alleviate.