We investigate the relationship between yield stability and species diversity in managed grasslands. To this end, ecological economic and econometric frameworks are developed and applied to evaluate potential risk-reducing effects of species diversity from a farmer’s perspective. Our empirical analysis is based on a rich panel data set obtained from a diversity experiment covering in total 60 species and a period of 6 years. We find empirical evidence for the risk-reducing effect of species diversity and the economic assessment reveals significant insurance values associated with diversity for a risk averse decision maker. Thus, the economic value of diversity would be underestimated if not accounting for this property and species diversity serves as valuable ex-ante risk management strategy.