Research Bulletin (Iowa Agriculture and Home Economics Experiment Station)


Farmers make decisions in an uncertain environment. Within a given year, weather and, consequently, yield are uncertain-even though more perfect knowledge exists relative to the mean, distribution and other statistics of yield over a period of years. Prices, especially for livestock where little government stabilization is provided, are particularly variable and give rise to difficulty of optimum choice. In addition to these main sources of uncertainty, many farmers are also faced with uncertainties stemming from personal and group relationships. An example of the latter is the length and conditions of tenure on rented farms.

Within this environment of uncertainty, farmers must make choices of the combinations of crop and livestock products to produce, the farm practices and resource mixes to employ, the scale of operations and capital investment and other decisions which lead to profits or losses. While the decision environment is highly uncertain, recommendations to farmers on physical practices and economic organization are often, and perhaps even typically, made as if the future were known with absolute certainty. Over the previous two decades, however, certain theories were developed which recognized the existence of uncertainty in economic choice. These theories generally supposed that subjective notions or expectations were formulated with respect to future events, and that decision makers formulated choices accordingly-using various precautionary measures to conform with the degree of uncertainty and their ability to withstand the risks attached to unfavorable outcomes. More recently, theories of choice have been developed which suppose much less knowledge, or subjective anticipation, of the probability of future events. These theories of choice, or models for decisions under absolute uncertainty, define strategies which can be used by decision makers when they assume meager or no knowledge about likelihood of outcome of alternative future events.



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