405. Risk in Australian grain farming

Earlier in my career, I did a lot of work on risk in Australian agriculture, particularly for grain and sheep farms. Now I’m part of a project called RiskWi$e, funded by the Grains Research and Development Corporation (GRDC). The project aims to improve risk management by Australian producers of our main grain crops.

406. Risk means probability distributions

In everyday speech, the word “risk” usually refers to the possibility of something bad happening. In the context of a business, like a farm, a more nuanced definition is needed. In some agricultural contexts, the everyday meaning could be relevant, but in others, not so much

408. Farmers’ risk perceptions

Some risks can be measured fairly objectively, while for others there is little objective evidence to go on. Either way, what drives farmers’ decisions is their own perceptions of the risk. Their perceptions may or may not line up well with objective measures.

409. Farmers’ risk preferences

Risk perceptions and risk preferences are different. Risk perceptions (covered in PD408) are about how risky someone thinks a particular strategy is. Risk preferences are about how much the person cares about the riskiness of a strategy.

410. Strategic decisions, tactical decisions and risk

My interest in risk in this series of posts is in how it affects decision making. There are two broad types of decisions that we need to consider: strategic and tactical.

412. Risk aversion and fertiliser decisions

This Pannell Discussions is about risk aversion and its influence on strategic decisions about the optimal rate of a fertiliser to apply, particularly nitrogen fertiliser.

413. Diversification to reduce risk

Diversification is one of the most effective and widely used ways to reduce risk. There are many opportunities to diversify in agriculture.

414. Intuitive versus analytical thinking about risk

In his famous book, “Thinking, Fast and Slow”, Daniel Kahneman introduced many people to a wealth of research about how people make judgments and decisions, much of it in the context of risk

415. Learning about the riskiness of a new farming practice

When considering whether to adopt a new farming practice, there are various aspects of the practice that farmers would like to learn about. One of those is how risky the practice is.

416. Neglecting the risks of a project

There is a well-documented trend for people to neglect downside risks when developing and evaluating a new project. This is part of a general tendency for people to be overly optimistic about new projects, including over-stating the likely benefits, under-stating the costs, and neglecting risks that could cause the project to fail.

418. Hedging to reduce crop price risk

Grain farmers in Australia (and most other places) make relatively little use of market mechanisms to reduce (“hedge”) price risk. Why is that?

419. Risk premium

A risk premium is the psychological cost of putting up with risk, expressed in monetary terms. Or, equivalently, it’s the psychological benefit of avoiding risk, expressed in monetary terms.

420. Systematic decision making under risk

Intuitive decision making can be good, but as we’ve seen in earlier posts in this series, sometimes it can lead us astray. When faced with risk, how can we approach decision making in a more systematic way to reduce the chance of us falling prey to our own biases and misjudgments?

421. Risk versus uncertainty

I want to make a distinction that has been lurking below the surface in some of the previous posts in this RiskWi$e series: risk versus uncertainty.

422. Risky farm decision making as a social process

Farmers sometimes go through extensive social engagements (conversations, discussions, debates, etc.) in the course of making decisions, especially big risky decisions. 

423. Risk aversion vs. loss aversion – #1

Risk aversion and loss aversion are two theories of how people make decisions under risk. They overlap in some ways but they also have some important differences. What are they and how do they differ?

424. Risk aversion vs. loss aversion – #2

Risk aversion and loss aversion are two theories of how people make decisions under risk. Is loss aversion the superior theory, as some have claimed?