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Are we risking too much? Perspectives on risk in farm modeling
Author(s) -
Pannell David J.,
Malcolm Bill,
Kingwell Ross S.
Publication year - 2000
Publication title -
agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.29
H-Index - 82
eISSN - 1574-0862
pISSN - 0169-5150
DOI - 10.1111/j.1574-0862.2000.tb00084.x
Subject(s) - risk aversion (psychology) , economics , probabilistic logic , value (mathematics) , actuarial science , neutrality , expected utility hypothesis , focus (optics) , microeconomics , financial economics , computer science , political science , physics , optics , artificial intelligence , machine learning , law
Risk and uncertainty have been extensively studied by agricultural economists. In this paper we question (a) the predominant use of static frameworks to formally analyse risk; (b) the predominant focus on risk aversion as the motivation for considering risk and (c) the notion that explicitly probabilistic models are likely to be helpful to farmers in their decision making. We pose the question: for a risk‐averse farmer, what is the extra value of a recommendation derived from a model that represents risk aversion, compared to a model based on risk neutrality? The conclusion reached is that for the types of the decision problems most commonly modelled by agricultural economists, the extra value of representing risk aversion is commonly very little.