How Loss Aversion, Status Quo Bias, and Perceived Policy Reliability Hinder Risk Management Adoption Among Non-Perishable Farmers in in Uttar Pradesh

Abstract

This study investigates the persistent paradox of low adoption of market-based price risk management instruments among non-perishable commodity farmers in Uttar Pradesh, India despite their availability. Traditional economic models fail to explain this gap, prompting a behavioural economics framework that posits farmers decisions are influenced by deep-seated cognitive biases and institutional incentives. Study hypothesize that loss aversion, status quo bias, and the perceived reliability of the Minimum Support Price (MSP) system create a state of "rational inertia" that discourages engagement with complex financial tools. Using a cross-sectional survey of 450 farmers in the Meerut district, Binary Logistic Regression to test these relationships. The results provide strong empirical support for our hypotheses. Study shows that loss aversion, status quo bias, and, most powerfully, perceived MSP reliability are all statistically significant negative predictors of adoption. The perceived reliability of MSP demonstrates a profound "crowding-out" effect where a one-unit increase in trust reduces the odds of adoption by 70%. Conversely, education was a significant positive predictor. These findings conclude that the barrier is not market failure but a behavioral dependency on a government safety net. The study argues for a strategic policy shift towards behaviorally-informed "nudge" interventions, such as reframing insurance products and using default options, to foster a more resilient and market-integrated agricultural sector.