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What Do We Know About Decision Making Under Risk And Where Do We Go From Here?

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  • Buschena, David E.
  • Zilberman, David

Abstract

This article reviews two major approached used in the past for risk analysis - the expected utility approach and the use of safety rules and endeavors to reconcile their applicability and use in light of the recent nonexpected utility risk literature and working using the mean-Gini coefficient for risk analysis. This leads to the identification of several "reduced form" hypotheses that hold under a variety of theoretical structures and to a discussion of some empirical evidence regarding these hypotheses. The major lesson of recent research of individual behavior under risk is that it is not always consistent with the expected utility approach; in short, there is no generic model for evaluating behavior under risk.

Suggested Citation

  • Buschena, David E. & Zilberman, David, 1994. "What Do We Know About Decision Making Under Risk And Where Do We Go From Here?," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 19(2), pages 1-14, December.
    • Handle: RePEc:ags:jlaare:30756
    DOI: 10.22004/ag.econ.30756
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    2. Mikémina Pilo & Nicolas Gerber & Tobias Wünscher, 2021. "Impacts of Adaptation to Climate Change on Farmers’ Income in the Savanna Region of Togo," Revue économique, Presses de Sciences-Po, vol. 72(3), pages 421-442.
    3. Graham R. Marshall & Kevin A. Parton & G.L. Hammer, 1996. "Risk Attitude, Planting Conditions And The Value Of Seasonal Forecasts To A Dryland Wheat Grower," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 40(3), pages 211-233, December.
    4. Pannell, David J. & Malcolm, Bill & Kingwell, Ross S., 2000. "Are we risking too much? Perspectives on risk in farm modelling," Agricultural Economics, Blackwell, vol. 23(1), pages 69-78, June.
    5. Bharat M. Upadhyay & Douglas L. Young, 2005. "An Operational Approach for Evaluating Investment Risk: An Application to the No-Till Transition," Working Papers 2005-1, School of Economic Sciences, Washington State University.
    6. John W. Ritchie & G. Yahya Abawi & Sunil C. Dutta & Trevor R. Harris & Michael Bange, 2004. "Risk management strategies using seasonal climate forecasting in irrigated cotton production: a tale of stochastic dominance," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 48(1), pages 65-93, March.
    7. Upadhyay, Bharat Mani & Young, Douglas L., 2005. "An Operational Approach for Evaluating Investment Risk: An Application to the No-Till Transition," Working Papers 12958, Washington State University, School of Economic Sciences.
    8. David J. Pannell & Getu Hailu & Alfons Weersink & Amanda Burt, 2008. "More reasons why farmers have so little interest in futures markets," Agricultural Economics, International Association of Agricultural Economists, vol. 39(1), pages 41-50, July.
    9. Govindasamy, Ramu & Italia, John, 1997. "Consumer Response to Integrated Pest Management and Organic Agriculture: An Econometric Analysis," P Series 36727, Rutgers University, Department of Agricultural, Food and Resource Economics.
    10. Stefanescu, Razvan & Dumitriu, Ramona, 2015. "Alegerea soluţiilor pentru expunerile faţă de risc [Choosing solutions to risk exposures]," MPRA Paper 65074, University Library of Munich, Germany.
    11. Govindasamy, Ramu & Italia, John & Liptak, Clare, 1997. "Quality of Agricultural Produce: Consumer Preferences and Perceptions," P Series 36739, Rutgers University, Department of Agricultural, Food and Resource Economics.
    12. Coble, Keith H. & Barnett, Barry J., 1999. "The Role Of Research In Producer Risk Management," Professional Papers 15803, Mississippi State University, Department of Agricultural Economics.
    13. Olivier Mahul, 1996. "Décision d'investissement d'un agriculteur neutre au risque en présence d'une contrainte financière," Post-Print hal-02841740, HAL.
    14. Serrao, Amilcar & Coelho, Luis, 2006. "The Role of area-yield crop insurance program face to the Mid-term Review of Common Agricultural Policy," 2006 Annual meeting, July 23-26, Long Beach, CA 21411, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    15. Bharat M. Upadhyay & Douglas L. Young, 2004. "An Operational Approach For Evaluating Investment Risk: An Application To The No-Till Transition," Others 0412002, University Library of Munich, Germany.
    16. Serrao, Amilcar & Coelho, Luis, 2005. "Analysing Farmers' Decision-Making Process Face to the Mid-Term Review of the Common Agricultural Policy in the Alentejo region of Portugal," 2005 Annual meeting, July 24-27, Providence, RI 19266, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    17. Anderson, Kim B. & Mapp, Harry P., Jr., 1996. "Risk Management Programs In Extension," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 21(01), pages 1-8, July.
    18. Ritchie, John W. & Abawi, G. Yahya & Dutta, Sunil C. & Harris, Trevor R. & Bange, Michael, 2004. "Risk management strategies using seasonal climate forecasting in irrigated cotton production: a tale of stochastic dominance," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 48(01), pages 1-29.
    19. Sandra Hoffmann, 2011. "Overcoming Barriers to Integrating Economic Analysis into Risk Assessment," Risk Analysis, John Wiley & Sons, vol. 31(9), pages 1345-1355, September.
    20. Serrao, Amilcar & Coelho, Luis, 2004. "Cumulative Prospect Theory: A Study Of The Farmers' Decision Behavior In The Alentejo Dryland Region Of Portugal," 2004 Annual meeting, August 1-4, Denver, CO 20245, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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