Bayesian herders: Updating of rainfall beliefs in response to external forecasts

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. The minority of herders who received these climate forecasts updated their expectations for below normal rainfall, but not for above normal rainfall. This revealed preoccupation with downside risk highlights the potential value of better climate forecasts in averting drought-related losses, but realizing any welfare gains requires that recipients strategically react to these updated expectations. (c) 2006 Elsevier Ltd. All rights reserved.