Files
Abstract
We propose a behavioral decision-making model to investigate what factors, observable as
well as unobservable, owner-managers consider regarding futures contract usage. The
conceptual model consists of two phases, reflecting the two-stage decision structure of
manager’s use of futures. In the first phase owner-managers consider whether futures are
within the market choice set for the enterprise. In the second phase the owner-manager
decides whether or not to initiate a futures position when confronted with a concrete choice
situation. In both phases owner-manager’s beliefs and perceptions play an important role.
The proposed model is tested on a data set of Dutch farmers, based on computer-assisted
personal interviews. Because we incorporate latent variables (e.g., perceptions and beliefs)
in both phases, we propose an estimation procedure that takes the measurement error of
these latent variables explicitly into account. The implications of the behavioral decision-making
model for futures contract design are derived.