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When probability distributions miss the point: Using scenario thinking and stochastic modelling in conjunction

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  • Strauss, P.G.
  • Meyer, F.H.
  • Kirsten, J.F.

Abstract

This article argues that significant shortcomings currently exist with respect to the analysis of risk and uncertainty in agricultural commodity markets, given the possibility that uncertainty will only increase in future. Based on this argument, a framework is proposed whereby intuitive logic scenario thinking is applied in conjunction with stochastic econometric modelling in order to mitigate this weakness. A case study is presented whereby the proposed framework is applied, to show the success of applying the framework given the current turmoil experienced in the general economy as well as in agricultural commodity markets. The case study results indicate that the application of the proposed framework should lead to improved decisions with respect to policy and business strategy pertaining to agricultural commodity markets, despite increased uncertainty.

Suggested Citation

  • Strauss, P.G. & Meyer, F.H. & Kirsten, J.F., 2010. "When probability distributions miss the point: Using scenario thinking and stochastic modelling in conjunction," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 49(2), June.
    • Handle: RePEc:ags:agreko:347288
    DOI: 10.22004/ag.econ.347288
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    Keywords

    Agribusiness; Risk and Uncertainty;

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