Coping with Risk in Agriculture

PREFACE ix Preface to the second edition ix Preface to the first edition x 1. INTRODUCTION TO RISK IN AGRICULTURE 1(22) Examples of risky decisions in agriculture, and their implications 1(3) The need to take account of risk in agriculture 4(1) Risk and uncertainty 5(6) Who needs to think about risk in agriculture? 11(2) A general approach to risk management in agriculture 13(5) When formal decision analysis is needed 18(2) Outline and general approach of the book 20(2) Selected additional reading 22(1) 2. DECISION ANALYSIS: OUTLINE AND BASIC ASSUMPTIONS 23(15) Basic concepts 23(2) A simple risky decision problem 25(2) Structuring the problem: influence diagram representation 27(1) Decision tree representation 28(2) Analysing the decision tree 30(4) Components of decision analysis and its axiomatic foundation 34(2) Other assumptions 36(1) Rational choice under risk 37(1) Selected additional reading 37(1) 3. MEASURING UNCERTAINTY WITH SUBJECTIVE PROBABILITIES 38(24) Probabilities to calibrate beliefs 38(3) Eliciting and describing probability distributions 41(14) Accounting for new information 55(6) Selected additional reading 61(1) 4. MAKING BETTER PROBABILITY JUDGEMENTS 62(30) Introduction 62(1) The relevance of data in probability assessment 62(9) Taking expert advice 71(3) Obtaining joint probability distributions 74(12) Psychological pitfalls in making probability judgements 86(4) Selected additional reading 90(2) 5. ATTITUDES TO RISKY CONSEQUENCES 92(29) Introduction 92(3) Utility function elicitation 95(5) Risk aversion 100(5) Utility function fitting 105(1) From expected utility to certainty equivalent 105(1) Problems in utility function elicitation 106(2) Alternatives to direct elicitation of utility functions 108(2) Rationalizing risk aversion 110(3) The importance of risk aversion 113(5) Group decision making 118(1) Conclusion 119(1) Selected additional reading 120(1) 6. INTEGRATING BELIEFS AND PREFERENCES FOR DECISION ANALYSIS 121(1) Decision trees revisited 121(9) Payoff table approach 130(1) Incorporating new information 131(3) Beliefs and preferences in analysing production under risk 134(4) Selected additional reading 138(2) 7. DECISION ANALYSIS WITH PREFERENCES UNKNOWN 140(17) Efficiency criteria 140(2) Analysis using moments of the distribution 142(5) Stochastic efficiency methods 147(9) Concluding comment 156(1) Selected additional reading 156(1) 8. STOCHASTIC SIMULATION 157(25) Introduction 157(1) Stochastic simulation as a tool in decision analysis 158(6) Basic sampling techniques 164(4) Methods to account for stochastic dependency 168(8) Combining stochastic simulation and optimization 176(5) Concluding comments 181(1) Selected additional reading 181(1) 9. RISK AND MATHEMATICAL PROGRAMMING MODELS 182(29) A brief introduction to mathematical programming 182(2) A basic example 184(1) Mathematical programming approaches to whole-farm system planning under risk 185(2) Risk programming 187(16) Stochastic programming 203(6) Concluding comment 209(1) Selected additional reading 210(1) 10. DECISION ANALYSIS WITH MULTIPLE OBJECTIVES 211(23) Introduction with some examples 211(2) Objectives and attributes 213(1) Structuring the decision problem 213(5) Basic concepts in multi-attribute utility 218(6) Assessing attribute utilities 224(3) Methods for weighting attribute utilities 227(3) Multi-attribute utility analysis under uncertainty 230(2) Other forms of multi-attribute utility analysis 232(1) Selected additional reading 233(1) 11. RISKY DECISION MAKING AND TIME 234(31) The time factor in decision analysis 234(2) Investment appraisal under uncertainty 236(8) Dynamic decision analysis 244(8) Stochastic dynamic modelling methods 252(12) Selected additional reading 264(1) 12. STRATEGIES DECISION MAKERS CAN USE TO MANAGE RISK 265(22) Introduction 265(3) On-farm strategies 268(7) Strategies to share risk with others 275(11) Concluding comment 286(1) Selected additional reading 286(1) 13. RISK CONSIDERATIONS IN AGRICULTURAL POLICY MAKING 287(22) Introduction 287(1) Government intervention and farm-level risk 288(5) Market failure for risk transfer 293(6) Experience with public risk-management instruments 299(4) Emerging issues in risk management 303(5) Concluding comment 308(1) Selected additional reading 308(1) REFERENCES 309(11) SELECTED SOFTWARE FOR DECISION ANALYSIS 320(2) INDEX 322