Bayesian Herders: Optimistic Updating of Rainfall Beliefs in Response to External Forecasts

Abstract

Temporal climate risk weighs heavily on many of the world's poor. Model based climate forecasts could benefit such populations, provided recipients use forecast information to update climate expectations. We test whether pastoralists in southern Ethiopia and northern Kenya update their expectations in response to forecast information and find that they indeed do, albeit with a systematic bias towards optimism. In their systematic optimism, these pastoralists are remarkably like Wall Street's financial analysts and stockbrokers. If climate forecasts have limited value to these pastoralists, it is due to the flexibility of their livelihood rather than an inability to process forecast information.

Keywords: expectations, risk, uncertainty, weather, early warning systems

JEL Classification: D84, O12, O13, Q16