Jardine (1975): “On presenting information to agronomists about flat profit curves for fertlizers, I observed such reactions as complete disbelief, blank incomprehension, incipient terror, and others less readily categorized.”
Flat payoff functions are: A consistent empirical finding (almost universal) Very important Rarely acknowledged Debated in 1975, but apparently not since
Implication 1: Margin for error Decisions without careful analysis Can consider extra factors Risk Personal preference DSSs focus on plateau, not optimum
Implication 2: The value of monitoring Sustainability indicators/EMS The value of information decision theory framework What difference to the decision? information decision What difference then to payoff? decision payoff Weighted by probabilities Value often low
Implication 2: The value of monitoring If payoff function is flat: Info may change decision But not change payoff by much
Implication 2: The value of monitoring If payoff function steep Optimal solution obvious More info doesn’t change it Either way, low info value
Implication 3: Precision farming Jock Anderson (1975): "In pursuing optimal levels of decision variables, precision is pretence and great accuracy is absurdity."
Implication 3: Precision farming Example: lime application for acidity Very low precision: same low rate for all Low precision: rate set for each soil type for each region Moderate precision: paddock by paddock (High: adjust within paddock)
Example: liming acidic soils Typical payoff function
Implication 3: Precision farming Value of information $/ha from greater precision of info Change from moderate to high 0 0 0
Implication 4: Value of research Consider two types of research increases the yield of a crop by 20% (increases yield directly) provides info that yield will be 20% higher than previously believed (increases yield indirectly through adjustments to input levels) Which is more valuable?
Implication 4: Value of research Value of improving technology = P2,2 - P1,1 Value of improving information = P2,2 - P1,2
Conclusion Flatness far more important than optimum Should emphasise flatness and its implications to our students to our clients to ourselves
Conclusion Implications include Margin for error/Flexibility Low value of monitoring Diminishing marginal value of precision Research: value of new technology greater than value of new information Risk aversion not very important in normative studies
www.davidpannell.net Pannell, D.J. (2006). Flat-earth economics: The far-reaching consequences of flat payoff functions in economic decision making, Review of Agricultural Economics 28(4): 553-566.