Formation and adaptation of reference prices by Manitoban grain farmers: an experimental study

Abstract

This thesis examines formation and adaptation of reference prices by Manitoban farmers. Research shows that preferences are reference-dependent and that marketing decisions are affected by reference prices. Results obtained in this research suggest that Manitoban farmers’ reference prices for grain are formed primarily by a weighted average price and by the highest price indicated in the experiment. Reference prices were found to adapt in the same direction as market prices, where adaptation to increasing prices was found to be larger than adaptation to decreasing prices. When deciding to sell grain, farmers were more likely to sell when they expected prices to decrease over the next month and when their reference price adjusted downwards towards the current price.