Using experiments to improve understanding of limits to decision making in Grazing Land Management

Modern farming is characterised by complexity, dynamics, and in many cases, heterogeneity in farming methods. Increasing use of dynamic investment theories, such as the Real Options Analysis method, allow integration of dynamic aspects but retain untenable assumptions in the face of widely acknowledged complexity and uncertainty in management of grazing systems. Relaxation of the requirement for rationality in decision making may provide economic models with a better ‘fit’ to observed behaviour of managers of rangelands grazing enterprises whilst allowing exploration of the reasons for and costs of particular patterns of decision making on farms. The economic analysis of decision making using explicitly dynamic choice functions and dynamic choice experiments framed in a grazing land management scenario is considered in this paper. Results indicate that models of bounded rationality, relaxing the assumptions of perfect knowledge and cognitive abilities, will have improved explanatory power for farm decision making whilst risk preferences appear to contribute little by way of variation in observed decision making. These insights suggest the need to broaden economic models of decision making to incorporate limits on rationality which will allow analyse of the costs of these limits and provide the framework to assist farm managers achieve higher enterprise and environmental efficiency.