Measurement of Enterprise Variability by the Variate Difference Method

Much has been written concerning the importance of risk and uncertainty on decision making. However, research results employing static theory are seldom modified by risk and uncertainty considerations to provide more realistic recommendations to farmers and others making decisions under imperfect knowledge. Too often, for example, farm plans derived by budgeting or linear programming are unqualifiedly recommended as "optimum" because they provide maximum profits under average or "normal" prices and yields. To make such results more meaningful, the farmer also needs some estimate of the risk or uncertainty associated with the plans. Ordinarily, the farmer's view of this uncertainty is highly subjective since his past experiences are often limited (that is, in the case of new farmers) or based on a "biased" sample of years. Thus, farmers need a more objective measurement of the uncertainty or variability associated with various enterprises and combinations of enterprises. Our contribution concerning this problem is published in the Giannini Foundation Paper series. The authors offer acknowledgment to C. O. McCorkle, Jr., G. M. Kuznets, and G. Tintner for helpful suggestions in various phases of the study and preparation of the manuscript.