IDEAS home Printed from https://ideas.repec.org/a/ags/jlaare/30756.html
   My bibliography  Save this article

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

Author

Listed:
  • 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
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/30756/files/19020425.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.30756?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Machina, Mark J., 1989. "Comparative statics and non-expected utility preferences," Journal of Economic Theory, Elsevier, vol. 47(2), pages 393-405, April.
    2. Shalit, Haim & Yitzhaki, Shlomo, 1984. "Mean-Gini, Portfolio Theory, and the Pricing of Risky Assets," Journal of Finance, American Finance Association, vol. 39(5), pages 1449-1468, December.
    3. Milton Friedman & L. J. Savage, 1948. "The Utility Analysis of Choices Involving Risk," Journal of Political Economy, University of Chicago Press, vol. 56(4), pages 279-279.
    4. Sandmo, Agnar, 1971. "On the Theory of the Competitive Firm under Price Uncertainty," American Economic Review, American Economic Association, vol. 61(1), pages 65-73, March.
    5. Quiggin, John, 1982. "A theory of anticipated utility," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 323-343, December.
    6. Machina, Mark J, 1987. "Choice under Uncertainty: Problems Solved and Unsolved," Journal of Economic Perspectives, American Economic Association, vol. 1(1), pages 121-154, Summer.
    7. Uzi Segal, 1984. "Nonlinear Decision Weights with the Independence Axiom," UCLA Economics Working Papers 353, UCLA Department of Economics.
    8. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    9. Bitros, George C & Kelejian, Harry H, 1976. "A Stochastic Control Approach to Factor Demand," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 17(3), pages 701-717, October.
    10. Hadar, Josef & Russell, William R, 1969. "Rules for Ordering Uncertain Prospects," American Economic Review, American Economic Association, vol. 59(1), pages 25-34, March.
    11. James G. March, 1978. "Bounded Rationality, Ambiguity, and the Engineering of Choice," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 587-608, Autumn.
    12. Rulon D. Pope & Richard E. Just, 1991. "On Testing the Structure of Risk Preferences in Agricultural Supply Analysis," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 73(3), pages 743-748.
    13. Battalio, Raymond C & Kagel, John H & Jiranyakul, Komain, 1990. "Testing between Alternative Models of Choice under Uncertainty: Some Initial Results," Journal of Risk and Uncertainty, Springer, vol. 3(1), pages 25-50, March.
    14. Chew, S. H. & Epstein, L. G., 1989. "A unifying approach to axiomatic non-expected utility theories," Journal of Economic Theory, Elsevier, vol. 49(2), pages 207-240, December.
    15. John M. Antle, 1989. "Nonstructural Risk Attitude Estimation," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 71(3), pages 774-784.
    16. William Lin & G. W. Dean & C. V. Moore, 1974. "An Empirical Test of Utility vs. Profit Maximization in Agricultural Production," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 56(3), pages 497-508.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. 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.
    2. 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).
    3. Sandra Hoffmann, 2011. "Overcoming Barriers to Integrating Economic Analysis into Risk Assessment," Risk Analysis, John Wiley & Sons, vol. 31(9), pages 1345-1355, September.
    4. 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).
    5. 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.
    6. 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.
    7. 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.
    8. 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(1), pages 1-8, July.
    9. Petru Cardei & Nicolae Constantin & Vergil Muraru & Catalin Persu & Raluca Sfiru & Nicolae-Valentin Vladut & Nicoleta Ungureanu & Mihai Matache & Cornelia Muraru-Ionel & Oana-Diana Cristea & Evelin-An, 2023. "The Random Vibrations of the Active Body of the Cultivators," Agriculture, MDPI, vol. 13(8), pages 1-24, August.
    10. 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.
    11. 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.
    12. Olivier Mahul, 1996. "Décision d'investissement d'un agriculteur neutre au risque en présence d'une contrainte financière," Post-Print hal-02841740, HAL.
    13. 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.
    14. 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).
    15. 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.
    16. Mikémina, Pilo & Gerber, Nicolas & Wünscher, Tobias, 2018. "Impacts of Adaptation to Climate Change on farmers’ income in the Savana Region of Togo," Discussion Papers 271152, University of Bonn, Center for Development Research (ZEF).
    17. 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.
    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(1), pages 1-29.
    19. 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.
    20. 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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Trabelsi, Mohamed Ali, 2006. "Les nouveaux modèles de décision dans le risque et l’incertain : quel apport ? [The new models of decision under risk or uncertainty : What approach?]," MPRA Paper 25442, University Library of Munich, Germany.
    2. Simone Cerreia‐Vioglio & David Dillenberger & Pietro Ortoleva, 2015. "Cautious Expected Utility and the Certainty Effect," Econometrica, Econometric Society, vol. 83, pages 693-728, March.
    3. Z. Bar‐Shira & R.E. Just & D. Zilberman, 1997. "Estimation of farmers' risk attitude: an econometric approach," Agricultural Economics, International Association of Agricultural Economists, vol. 17(2-3), pages 211-222, December.
    4. Trabelsi, Mohamed Ali, 2008. "Les nouveaux modèles de décision dans le risque et l’incertain : quel apport ? [The new models of decision under risk or uncertainty: What approach?]," MPRA Paper 83347, University Library of Munich, Germany, revised 2008.
    5. Essid, Samir, 1997. "Choice under risk with certainty and potential effects: A general axiomatic model," Mathematical Social Sciences, Elsevier, vol. 34(3), pages 223-247, October.
    6. Peter Brooks & Simon Peters & Horst Zank, 2014. "Risk behavior for gain, loss, and mixed prospects," Theory and Decision, Springer, vol. 77(2), pages 153-182, August.
    7. Levy, Haim & Levy, Moshe, 2002. "Experimental test of the prospect theory value function: A stochastic dominance approach," Organizational Behavior and Human Decision Processes, Elsevier, vol. 89(2), pages 1058-1081, November.
    8. Buschena, David E. & Zilberman, David, 1992. "Similarity of Choices and the Performance of the Expected Utility Approach: Empirical Results," 1992 Quantifying Long Run Agricultural Risks and Evaluating Farmer Responses to Risk Meeting, March 22-25, 1992, Orlando, Florida 307868, Regional Research Projects > S-232: Quantifying Long Run Agricultural Risks and Evaluating Farmer Responses to Risk.
    9. Trabelsi, Mohamed Ali, 2019. "The new models of decision in risk: A review of the critical literature," MPRA Paper 92693, University Library of Munich, Germany, revised 2019.
    10. Christian Gollier & James Hammitt & Nicolas Treich, 2013. "Risk and choice: A research saga," Journal of Risk and Uncertainty, Springer, vol. 47(2), pages 129-145, October.
    11. Phillips Peter J. & Pohl Gabriela, 2018. "The Deferral of Attacks: SP/A Theory as a Model of Terrorist Choice when Losses Are Inevitable," Open Economics, De Gruyter, vol. 1(1), pages 71-85, February.
    12. Moshe Levy & Haim Levy, 2013. "Prospect Theory: Much Ado About Nothing?," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 7, pages 129-144, World Scientific Publishing Co. Pte. Ltd..
    13. Hurley, Terrance M., 2010. "A review of agricultural production risk in the developing world," Working Papers 188476, HarvestChoice.
    14. Just, Richard E. & Just, David R., 2011. "Global identification of risk preferences with revealed preference data," Journal of Econometrics, Elsevier, vol. 162(1), pages 6-17, May.
    15. Zvi Safra & Uzi Segal, 2005. "Are Universal Preferences Possible? Calibration Results for Non-Expected Utility Theories," Boston College Working Papers in Economics 633, Boston College Department of Economics.
    16. Marshall, Robert C & Richard, Jean-Francois & Zarkin, Gary A, 1992. "Posterior Probabilities of the Independence Axiom with Nonexperimental Data (or Buckle Up and Fan Out)," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(1), pages 31-44, January.
    17. Louis Lévy-Garboua, 1999. "Expected Utility and Cognitive Consistency," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-03674666, HAL.
    18. Jean Baccelli, 2018. "Risk attitudes in axiomatic decision theory: a conceptual perspective," Theory and Decision, Springer, vol. 84(1), pages 61-82, January.
    19. Bernasconi, Michele, 1992. "Different Frames for the Independence Axiom: An Experimental Investigation in Individual Decision Making under Risk," Journal of Risk and Uncertainty, Springer, vol. 5(2), pages 159-174, May.
    20. Kam Yu, 2009. "Measuring the Output and Prices of the Lottery Sector: An Application of Implicit Expected Utility Theory," NBER Chapters, in: Price Index Concepts and Measurement, pages 405-425, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    Risk and Uncertainty;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:jlaare:30756. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/waeaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.