Estimation of a Utility Function from Semen Purchases from Holstein Sires

Abstract Weighting of expected income versus risk of a decision maker is expressed by his utility function; it can be estimated by analyzing his portfolio selection. To estimate a utility function of dairymen, the portfolio selection was measured by semen purchases or expenditures by dairymen for semen of 328 Holstein sires of eight bull studs. Purchases were divided into those from technicians and direct. Three indexes combining Predicted Differences for milk, fat, and type were constructed to estimate gross income of dairymen. Income after subtracting semen price also was used for three additional indexes. Multiple regression analyses were used to estimate coefficients or weights of the utility function. The weight for expected income was significant for all indexes. Coefficients for risk (measured as variance of income) were highly significant for gross income indexes and one index after semen price was subtracted. These coefficients were significant when portfolio selection was measured by expenditures for total semen purchased and for semen purchased directly by dairymen and distributors. Coefficients were nonsignificant for purchases from technicians and for portfolio selection measured by units of semen purchased. Dairymen based their selection of semen mainly on expected income. A tendency towards risk aversion was observed.