Natalia Dobryagina is Associate Professor of the Russian Presidential Academy of National Economy and Public Service, North-West Institute of Management. Visiting Professor at Sciences Po Grenoble (2021)
Agriculture: the victim of the “Rule of Thumb”
“Ask anyone for their impression of a British farmer and they are likely to describe an aged character with a flat cap and a tweed jacket… It’s not, however, an image that will inspire the brightest and best young people to take up a career in agriculture. Nor is it accurate.”
That’s how an article in the Guardian began a discussion about the need of young people in the sphere of agriculture and although the article appeared 8 years ago, the perception of the agricultural sphere hasn’t changed in the UK, as well as in other countries. In Russia, for example, the sphere of agriculture is considered as not prestigious, unprofitable, not creative, not innovative and lacking opportunities.
Public policies, focused on rural areas development, consider young people involvement into agrosphere as one of the key priorities, because young people with business education bring innovation, capital, business networks and knowledge to the sphere. However the effect of policies, focused on young people attraction, is limited due to a number of reasons. One of the key reasons is the demotivating perception of the agricultural sphere. But the point is that this perception is not only unattractive for young people, it is also biased.
In Behavioral Economics a bias is a deviation from rational and objective perception or decision. Biases appear due to limited cognitive abilities of people and a limited amount of time and effort devoted to decision making. In other words, we all can be wrong in our perceptions and conclusions. The point is that when we evaluate attractiveness of the agricultural sphere of entrepreneurship, we are wrong for a reason. One of the reasons why the sphere is perceived as unattractive is the so-called status quo bias.
The agricultural sphere of entrepreneurship is much older than the sphere of IT, so it is considered as outdated and not profitable. And although there are a lot of proves and examples, which demonstrate that agricultural sphere currently utilizes modern technologies and represent a profitable direction of entrepreneurial career, these examples are not known, not trendy, information about them is not widespread.
Behavioral Economics (BE) and Decision Sciences (DS) might not only explain the reasons of biased perception of the agricultural sphere, but might also provide instruments, applicable in entrepreneurship motivation policies, which might increase the overall effect of such policies.
Behavioral Economics points our attention to why our behavior is not perfectly rational as classical economic models assume. And as public policies, devoted to agricultural sphere support, apply these models, they assume that potential entrepreneurs might enter the sphere due to available subsidies, special educational programs and other instruments. But one of the reasons why it doesn’t happen is very simple. Quite often potential entrepreneurs simply do not know about all these special opportunities.
One of such cases was discovered by the Behavioral Insights Team (BIT), in their project, which was conducted in Turkey in 2017. Turkey’s Ministry of Trade devoted significant budget to a project, which was supposed to nudge the local business to start exporting. However, most of the budget was not spent simply because entrepreneurs were unaware of such opportunities. This is the issue which Decision Theory might explain.
Entrepreneurial decision, according to the Decision Theory, implies that potential entrepreneurs consider a list of alternatives and evaluate them through their decision criteria. When young people consider entrepreneurial opportunities, agriculture doesn’t even appear in their list of alternatives. As the sphere seems unattractive due to the status quo bias and industry stereotypes, we might conclude that it is evaluated based on the so-called “Rule of Thumb” approach to decision making.
The other, urban spheres of entrepreneurship are considered by young people on the base of more complicated decision approaches, such as value analysis, which assumes consideration of all pros and cons, weighting advantages and disadvantages of different alternatives. So consequently, negative stereotypes about agricultural sphere of entrepreneurship make young people evaluate it by the simplest and quickest decision approaches, which don’t anyhow change the biased perception of the sphere.
At the same time, common perception of the IT sphere as profitable nudges young people to evaluate it on the base of more complicated strategies, making them search for more information about the Industry and its opportunities. Therefore, young people won’t know about agricultural entrepreneurship support policies because they won’t even try to search for them.
Andres Iniesta: saving the image of a farmer
Decision Sciences can not only help in identifying biases in entrepreneur’s decision making, it can also provide tools for debiasing. In one of my articles, I’ve made an experiment with young people, receiving business education in the University of Barcelona in order to check the hypothesis that the so-called celebrity branding might significantly change the perception of the agricultural sphere of entrepreneurship. After students were informed that the local Catalan celebrity, famous football player, Andres Iniesta, is involved in the production of agricultural products, they’ve changed their perception of the sphere.
It is worth mentioning that not only overall attractiveness of the agricultural sphere of entrepreneurship has significantly increased, but the expected benefits, which the agrosphere might provide, have also risen. Celebrity branding increases prestige and evokes sense of pride. Awareness about Iniesta’s involvement in agribusiness, significantly increased expected opportunities for self-realisation, helping the society and anticipated respect from others.
Celebrity branding as a tool might be a quite simple and cheap instrument for agricultural entrepreneurship motivation, as celebrities often take part in public service announcements for free. Another important aspect is that celebrity branding has an impact on non-financial expected benefits from entrepreneurial career, what again needs clarification from decision making perspective. There was a lot of debate on the importance of non-financial reasons, which lead people to entrepreneurial career. These reasons include joy of creation, freedom, feeling of achievement.
Although the importance of non-pecuniary criteria in entrepreneurial decision was always emphasized in literature, there is very limited number of papers, which tried to model these non-financial factors as entrepreneurial decision criteria. More than that, one of the consequences of this disregard is the fact that existing entrepreneurship motivation policies simply ignore the importance of non-financial motivation in agricultural entrepreneurship encouragement and don’t anyhow contribute to the non-financial motivation of the industry newcomers. As it was proven in the experiment, young people, who are more attracted by the rural sphere value non-financial benefits more than those who are more attracted to the urban spheres of entrepreneurship.
Trying to model entrepreneurial decision
I definitely was not the first one, who tried to model entrepreneurial decision, but in order to get closer to the reality with all biases, under- and overestimations, I’ve decided to create this model applying Decision Sciences and Behavioral Economics. One of the key peculiarities in entrepreneurial decision making, which I’ve discovered, was that entrepreneurs don’t always compare the expected income from entrepreneurial career to income from alternative occupations, as it is often believed. Instead, they might have certain minimum level of income, which they want to receive and if this minimum level is guaranteed in case of all career alternatives, an individual will evaluate career opportunities by other, non-financial criteria. This is important, because if policy makers believe that financial motivation of entrepreneurs should adapt the rule “the more – the better”, that might lead to ineffective resources allocation.
Another key aspect of entrepreneurial decision is different importance of decision criteria. The point is that different groups of entrepreneurs enter certain Industry for different reasons and if one group is more motivated by opportunity to help the world and people and another group is more motivated by a chance to get into highly entrepreneurial environment and society, that should also be considered by policy makers.
Finally, biased perception of future gains is also one of the key reasons, why young people start a business or decline an opportunity. As it was demonstrated in my survey, 27% of urban entrepreneurs and 13% of rural entrepreneurs underestimated their future gains when they were deciding to start entrepreneurial career, while 50% of urban entrepreneurs and 27% of rural entrepreneurs overestimated their future gains. This biased perception of future benefits is often connected with such behavioral peculiarities of entrepreneurs as overoptimism and overconfidence. Overoptimism is overestimation of probability of success, and overconfidence means underestimation of variation of the outcomes. This entrepreneurial peculiarity should also be taken into account by policy makers as it might lead to limited effect of a policy (if future benefits are underestimated) or to a business failure (if future benefits are overestimated).
Decision Sciences and Behavioral Economics might provide significant contribution to policies, devoted to entrepreneurial motivation as they investigate the process, which determines how many people will start entrepreneurial career. On the other hand, Behavioral Economics and Decision Sciences might be useful for entrepreneurs themselves, as they might help in identifying their perception biases, which might lead to business failure or a failure to see and employ certain opportunity.