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Flat Earth Economics: The Far-reaching Consequences of Flat Payoff Functions in Economic Decision Making

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David J. Pannell

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Abstract

Economists tend to emphasize the optimum, but in many cases, even large deviations from optimal decisions make little difference to the payoff. This has far-reaching implications that are under-recognized, including: (a) decision makers often have a wide margin for error in their production planning decisions, and flexibility to pursue factors not considered in the calculation of payoffs; (b) optimizing techniques are sometimes of limited practical relevance for decision support; (c) the value of information used to refine management decisions is often low; and (d) the benefits of using "precision farming" technologies to adjust production input levels are often low. Copyright 2006 American Agricultural Economics Association

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Article provided by American Agricultural Economics Association in its journal Review of Agricultural Economics.

Volume (Year): 28 (2006)
Issue (Month): 4 (December)
Pages: 553-566
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Handle: RePEc:bla:ragrec:v:28:y:2006:i:4:p:553-566

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  1. Pannell, David & Hailu, Getu & Weersink, Alfons & Burt, Amanda, 2007. "More Reasons Why Farmers Have So Little Interest in Futures Markets," Working Papers 9232, University of Western Australia, School of Agricultural and Resource Economics. [Downloadable!]
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  2. Roeder, Norbert & Lederbogen, Dirk & Trautner, Juergen & Bergamini, Ariel & Stofer, Silvia & Scheidegger, Christoph, 2009. "The impact of changing agricultural policies on jointly used rough pastures in the Bavarian Pre-Alps - an economic and ecological scenario approach," 83rd Annual Conference, March 30-April 1, 2009, Dublin, Ireland 51070, Agricultural Economics Society. [Downloadable!]
  3. Meyer-Aurich, A. & Gandorfer, M. & Weersink, A. & Wagner, P., 2008. "Economic analysis of site-specific wheat management with respect to grain quality and separation of the different quality fractions," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 43649, European Association of Agricultural Economists. [Downloadable!]
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